Washington Legal FoundationAdvocate for freedom and justice©

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WLF

SPECIAL REPORT:

Federal Erosion of Business Civil Liberties

“What is astonishing is that the attorney-client privilege, one of the foundational rights on which rests Anglo-American legal culture . . . should now be under siege. The two federal agencies that have been most vigorous in seeking waiver of the attorney-client privilege have been the Department of Justice and — unfortunately, I must say — the Securities and Exchange Commission.”

Paul S. Atkins SEC Commissioner January 18, 2008

“The message should be clear that prosecutions will go as high up the corporate hierarchy as the evidence permits and we will hold senior managers of corporations accountable, as well as the corporation itself.”

Granta Y. Nakayama EPA Assistant Administrator for Enforcement and Compliance June 12, 2006

Copyright © 2008 Washington Legal Foundation

This Report, along with WLF’s Timeline: FederalErosion of Business Civil Liberties, is a part of ourongoing CRIMINALIZATION OF FREE ENTERPRISE—BUSINESS

CIVIL LIBERTIES PROGRAM. For more information on thisprogram or to receive additional copies of this Report or theTimeline, please contact WLF at (202) 588-0302 or visit usonline at www.wlf.org.

SPECIAL REPORT:

Federal Erosion of Business Civil Liberties

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Table of Contents

Introduction: The Honorable Dick Thornburgh . . . . . . . . . . . . . . . . . . . . . . . . . ii

Chapter One: Mens Rea, Public Welfare Offenses, and the Responsible

Corporate Officer Doctrine . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-1

Chapter Two: Environmental Protection Agency Criminal Enforcement

Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2-1

Chapter Three: Department of Justice Criminal Prosecution Policies . . . . . . . 3-1

Chapter Four: Parallel Civil and Criminal Prosecutions . . . . . . . . . . . . . . . . . 4-1

Chapter Five: Attorney-Client and Work Product Privileges . . . . . . . . . . . . 5-1

Chapter Six: Deferred Prosecution and Non-Prosecution Agreements . . . . 6-1

Chapter Seven: U.S. Sentencing Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7-1

Appendix: Reference Resources: Washington Legal Foundation

Legal Studies Publications and Programs . . . . . . . . . . . . . . . . A-1

The Honorable Dick Thornburgh has served as Governor of Pennsylvania, Attorney Generalof the United States, and Under-Secretary-General of the United Nations during a public career that hasspanned over 30 years. Mr. Thornburgh is currently counsel to the national law firm of Kirkpatrick &Lockhart Preston Gates Ellis LLP in its Washington, D.C. office, and is Chairman of Washington LegalFoundation's Legal Policy Advisory Board.

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INTRODUCTION

by

The Honorable Dick Thornburgh

The Washington Legal Foundation's SPECIAL REPORT: FEDERAL EROSION OF

BUSINESS CIVIL LIBERTIES provides the legal community with an excellent summary,

analysis, and critique of the key legal, judicial, and regulatory developments in the growing

trend to criminalize normal business activities.

Ideal for reference by corporate counsel, white-collar defense attorneys, and the

general legal and public policy community, W LF's up-to-date REPORT traces the

controversial development of the following legal topics in seven chapters, each followed

by a timeline, with an emphasis on environmental criminal enforcement by the

Environmental Protection Agency (EPA) and the Department of Justice (DOJ): 1) Mens

Rea, Public Welfare Offenses, and the Responsible Corporate Officer Doctrine; 2) EPA

Criminal Enforcement Policies; 3) DOJ Criminal Prosecution Policies; 4) Parallel Civil and

Criminal Prosecutions; 5) Attorney-Client and Work Product Privileges; 6) Deferred

Prosecution and Non-Prosecution Agreements; and 7) U.S. Sentencing Guidelines.

An important theme of the REPORT is that the EPA and DOJ have often resorted to

criminal prosecution of minor regulatory offenses when administrative and civil remedies

would be more appropriate. In that regard, the REPORT presents several case studies that

call into question the case selection criteria used by EPA and DOJ, and which reminds the

reader of former Attorney General Robert Jackson's admonition to all U.S. Attorneys that

"the prosecutor has more control over life, liberty, and reputation than any other person in

America." Of particular interest is Chapter Five on the Attorney-Client Privilege, which

discusses the assault by DOJ, the SEC, and other agencies on the venerable privilege, but

also notes the successes that are being made to counter its erosion.

I heartily commend the Washington Legal Foundation for producing this useful

REPORT, which should be required reading for private and government lawyers alike, as

well as for publishing a companion TIMELINE fold-out chart that chronicles and highlights

the key events and cases described herein.

Chapter One

Mens Rea, Public Welfare Offenses, andthe Responsible Corporate Officer Doctrine

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“You cannot punish corporations. . . . If you dissolve the offendingcorporation. . . .[y]ou merely drive what you are seeking to check into other forms or temporarily disorganize some important businessaltogether, to the infinite loss of thousands of entirely innocentpersons, and to the great inconvenience of society as a whole."

Woodrow WilsonAddress to the Annual ABA Meeting (1910)

Chapter One

MENS REA, PUBLIC WELFARE OFFENSES, ANDTHE RESPONSIBLE CORPORATE OFFICER DOCTRINE

Mens Rea. Historically, Anglo-American jurisprudence has required

the government to prove that a defendantcharged with a crime has performed a wrongfulact ("actus rea") with a wrongful intent ("mensrea"), that is, "an evil-doing hand" and "an evil-meaning mind." See Morissette v. UnitedStates, 342 U.S. 246, 251 (1952). The SupremeCourt has described this principle as being "asuniversal and persistent in mature systems oflaw as belief in freedom of the human will." Id.at 250. Generally speaking, prosecutors arerequired to prove that a defendant had thespecific intent or purpose to commit a crimethat is inherently evil or wrongful, or malum inse, such as robbery or assault. Society hastraditionally dealt with these common law ormala in se crimes by criminal prosecution anda p p r o p r i a t e p u n is h m e n t , i n c l u d i n gincarceration, to serve the purposes ofretribution and deterrence.

However, with the dramatic growth of theadministrative and regulatory state in the lastseveral decades, many commercial activities

that were otherwise not considered criminal —and indeed, were socially useful because theyproduced needed goods and services — weremade subject to a vast array of complex lawsand regulations. By 1900, there were onlyapproximately 165 federal criminal laws on thebooks. By 1970, the number increased morethan ten-fold to approximately 2,000. In 1998,an American Bar Association task force chairedby former Attorney General Edwin Meese III,issued a report, The Federalization of CriminalLaw, which estimated the number of federalcriminal statutes to be 3,300. By 2004, therewere more than 4,000 separate criminaloffenses scattered throughout 27,000 pages ofthe U.S. Code. JOHN S. BAKER, JR., THE

FEDERALIST SOC'Y FOR L. & PUB. POL.,MEASURING EXPLOSIVE GROWTH OF FED.CRIME LEGISLATION (2004). As onecommentator aptly described it, the "federalc r i m i n a l c o d e " i s " s i m p l y a n'incomprehensible,' random and incoherent,'duplicative, incomplete, and organizationallynonsensical' mass of federal legislation thatcarries criminal penalties." Julie R. O'Sullivan,

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The Federal Criminal "Code" is a Disgrace:Obstruction Statutes as Case Study(SYMPOSIUM 2006: THE CHANGING FACE OF

WHITE-COLLAR CRIME), 96 J. CRIM. L. &CRIMINOLOGY 643 (2006) (citations omitted).

In addition to the plethora of federalcriminal laws, the number of regulations in theCode of Federal Regulations (CFR), many ofthem criminally enforceable, far exceeds thestatutes, with estimates ranging up to 300,000.See John C. Coffee, Jr., Does Unlawful MeanCriminal?: Reflections on the DisappearingTort/Crime Distinction in American Law, 71B.U.L. REV. 193, 216 (1991). Regulationsissued by the Environmental Protection Agency(EPA) alone fill 30 volumes of the CFR, whichis 50 percent more than the dense InternalRevenue Service (IRS) regulations. Indeed, theregulations just for three of the more thandozen environmental statutes — the Clean AirAct (CAA), Clean Water Act (CWA), and theResource Conservation and Recovery Act(RCRA) — number 9,000 pages. Violations ofany one of these may lead to criminalprosecution. Some members of Congressregard this explosive growth of regulations asan usurpation of its lawmaking role, and haveperiodically introduced remedial legislation tothat affect. See, e.g., CongressionalResponsibility Act of 2005 (H.R. 931),introduced by Rep. J.D. Hayworth (R-AZ),which would prohibit a regulation from takingeffect unless the text of the regulation isenacted into law by Congress. Unfortunately,those legislative proposals have not beensuccessful.

Environmental regulations are just ascomplex and confusing, if not more so, as theIRS code and regulations. As one former EPAofficial acknowledged, "RCRA is a regulatorycuckoo land of definition . . . . I believe wehave five people in the agency who understandwhat `hazardous waste' is." United States v.

White, 766 F. Supp. 873, 882 (E.D. Wash.1991). See also Inland Steel Co. v. EPA, 901F.2d 1419, 1421 (7th Cir. 1990) (describingRCRA as a "statutory Cloud Cuckoo Land").Environmental regulations are so vast andcomplex that most corporate officials candidlyadmit that it is simply impossible to complywith all of them. For example, if certainsolvents are poured onto a surface to becleaned, the rag used to wipe the surfacebecomes a hazardous waste, which is thensubject to strict storage and disposal rules.However, if the solvent is first poured onto therag, then the rag is not a hazardous waste.Businesses and individuals are faced with a"regulatory hydra" and regulatory termssuggestive of "Alice In Wonderland," as onecourt put it. United States v. Mills, 817 F.Supp. 1546, 1548 (N.D. Fla. 1993).

For the most part, sanctions available forviolating these so-called mala prohibitaoffenses — conduct that is deemed wrongfulonly because a law or regulation prohibits orregulates it — range from administrativepenalties or sanctions imposed by theappropriate regulatory agency, to civilproceedings in federal court in the form ofinjunctive relief, restitution, and penalties, andfinally to criminal sanctions involving fines,incarceration, debarment from governmentcontracts, and a variety of conditions forprobation. Yet, unlike bank robbery, assaultand other mala in se crimes, violations whichcannot be brought before an administrative lawjudge or a civil court, regulatory offenses arewell-suited for non-criminal treatment by usingmore appropriate administrative and civilremedies. This is especially true for thoseinfractions that are committed in the course ofcarrying out otherwise socially useful businessactivities.

Unfortunately, as the next two chapters inthis Report demonstrate, EPA and the

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Department of Justice (DOJ) have been abusingtheir discretion by increasingly resorting tocriminal penalties instead of utilizing morereasonable administrative and civil remediesfor regulatory offenses, particularly in theenvironmental area. This criminalenforcement trend is due to a number of factors,including an increase in enforcement staff,increased statutory criminal penalties, andincreased punishment provided for under theSentencing Guidelines. In some cases, bothcivil and criminal charges are brought inparallel prosecutions by the agency and U.S.Attorneys, which can lead to abusive practicesas further described in Chapter Five.

Corporate Criminal Liability. Becausea corporation is an artificial or fictional entity,it cannot form any intent, criminal or otherwise;rather, it can act only through its officers,employees, and agents. Corporations have longbeen held to be vicariously liable for tortscommitted by their employees and agents in thescope of their duties. In 1909, that concept wasextended by the Supreme Court when it ruledfor the first time that a corporation may be heldcriminally responsible for the acts of its agentsor employees if they were motivated in part tobenefit the company and if the law required ashowing of "specific intent." New York Central& Hudson River R.R. Co. v. United States, 212U.S. 481 (1909).

Shortly after this decision, the idea ofcriminally punishing a corporation drew sharpcriticism, most notably from future U.S.President Woodrow Wilson, who stated beforethe Annual ABA Meeting in 1910:

You cannot punish corporations. . . .If you dissolve the offendingcorporation . . . [y]ou merely drivewhat you are seeking to check intooth er forms o r tempo rar i lydisorganize some important business

altogether, to the infinite loss ofthousands of entirely innocentp e r s o n s , and to the g r e a tinconvenience of society as a whole.

Over the last decade, even as morecorporations are criminally prosecuted, therehas been a growing consensus that holdingcorporations vicariously liable for the criminalacts of their employees is both wrong andunnecessary. As Professor Jeffrey S. Parkersuccinctly stated, "[c]orporate criminal liabilityconflicts with the fundamental moral preceptsof criminal law, and arose only as a nineteenthcentury expedient to fill a gap in public lawenforcement institutions that has long sinceclosed. Under current conditions, there is nolegitimate law enforcement purpose forcorporate criminal liability that cannot beequally or better served by the alternative legalprocesses of civil liability." Jeffrey S. Parker,Doctrine of Destruction: The Case ofCorporate Criminal Liability, 17 MANAGERIAL

& DECISION ECON. 381 (1996). Despite theavailability of administrative and civil remediesas alternatives to criminal sanctions, regulatorsand prosecutors have continued to criminalizebusiness activity and target the corporation, itsofficers, and employees.

While the concept of imputing mens rea orcriminal intent of employees and agents to thecorporation is troubling enough, the boundaryhas been pushed even farther by holding acorporation criminally liable even when noindividual in the corporation possessed anymens rea or intent to commit an offense. InUnited States v. Bank of New England, 821 F.2d844 (1st Cir. 1987), cert. denied, 484 U.S. 943(1987), the court held that under the so-called"collective knowledge" doctrine, theknowledge of individual employees can becombined to reach the critical mass of criminalintent, even if separately, they do not possessthe necessary intent to be punished

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individually. Indeed, even if the acts of theemployee are in direct conflict with corporatepolicy, the company can still be held criminallyliable. The Bank of New England court furtherfound that a corporation can also be foundcriminally liable if it is "willfully blind" orindifferent to the misconduct of its employees.

Individual Criminal Liability. Manyregulatory statutes give prosecutors broaddiscretion to enforce the law administratively,civilly, or criminally. When the governmentchooses the criminal option, corporate officersor employees can be easily branded as felonsand sent to prison for many years because thelevel of mens rea or intent required to beproven has been greatly watered down by thecourts and Congress over the years. The levelof criminal intent necessary to prosecute anindividual depends to a great extent upon thelevel of intent specified in the statute beingenforced. Unfortunately, there are now over100 states of mens rea specified in federalcriminal statutes that have been given differentinterpretations by federal judges, causingconfusion in this area of the law. William S.Laufer, Culpability and the Sentencing ofCorporations, 71 NEB. L. REV. 1049, 1065(1992).

While the nomenclature used by federalcourts varies widely, mens rea is generallycategorized in descending order of culpabilityas follows:

(1) specific intent, perhaps the highestlevel of intent, requires conduct that is"knowing, purposeful, and willful" as wellas factual knowledge of the law orregulation;

(2) general intent, where the conduct is"knowing," that is, the person may notknow that the conduct was against the law,but intentionally committed the act in

question;

(3) negligence, where the person failed totake reasonable steps to prevent theconduct, or was "willfully blind,""consciously avoided," or "reckless"regarding the consequences of theirconduct; and

(4) strict liability, where criminal liabilitycan be imposed even though the actor hadno mens rea or intent to commit theoffense, and was not negligent. As thischapter demonstrates, the trend has been totransform even knowing offenses intostrict liability offenses.

On the other hand, the American LawInstitute's Model Penal Code (MPC) hascategorized criminal intent, from most to leastculpable, as follows: (1) purpose, (2)knowledge, (3) recklessness, (4) negligence,and (5) strict liability. As the Supreme Courthas noted, "`purpose' corresponds loosely withthe common-law concept of specific intent,while ̀ knowledge' corresponds loosely with theconcept of general intent." United States v.Bailey, 444 U.S. 394, 405-06 (1980). Whilemost States have adopted the MPC'sclassifications of mens rea, Congress has notdone so, thus leaving the federal law in thisarea more confusing than it need be. See alsoKenneth W. Simons, Should the Model PenalCode's Mens Rea Provisions Be Amended?, 1OHIO ST. J. CRIM. L. 179 (2003).

Over the last few decades, the case law hasdevolved to allow criminal prosecutions andconvictions of "public welfare offenses" tostand without a showing of criminal intent oractual knowledge, which is tantamount toimposing strict liability. To make mattersworse, targets of criminal prosecution includenot only the individuals who actuallycommitted the regulatory offense, but also the

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company, under the doctrine of vicariousliability, and company officers, under the so-called responsible corporate officer doctrine,even though they neither were aware of norcondoned the employee's conduct. See DANIEL

RIESEL, The Elements of Mens Rea,ENVIRONMENTAL ENFORCEMENT: CIVIL AND

CRIMINAL § 6.03 (Law Journal Press 2007).

Moreover, regulatory agencies promulgaterules that not only depart from the intent ofCongress, but also impose criminal penaltiesthat dispense with the showing of criminalintent. For example, at the 2002 FederalistSociety annual meeting, the General Counsel ofthe Department of Treasury publicly boastedabout his agency's "invention" of a bankregulation designed to prevent a particular formof money laundering by eliminating mens reaand making bank employees strictly liable,contrary to the intent of Congress. This erosionof the mens rea requirement has taken a heavytoll on individuals, employees, andcorporations that are being increasinglyensnared by unfair and unwarranted criminalprosecution.

Categories of Criminal RegulatoryOffenses. Generally speaking, any violation ofregulatory statutes, such as the CWA, CAA,and RCRA, can be prosecuted administratively,civilly, or criminally. For example, under theCWA, the EPA may (1) seek penalties of up to$10,000 per day per violation and "cease anddesist" orders in administrative proceedings; (2)file a civil action in federal district ourt andseek civil penalties of up to $25,000 per day perviolation as well as injunctive relief; or (3) filecriminal charges. In turn, criminal charges canbe brought under three different levels orcategories of intent: (1) "negligence" or amisdemeanor violation subject up to one-yearimprisonment; (2) "knowing violation," afelony subject up to three-years imprisonment;and (3) "knowing endangerment," a violation

subject up to 15 years imprisonment. 33 U.S.C.§§ 1319(a)-(g). Unlike the CWA and CAA,RCRA does not have a misdemeanor provision;any knowing violation is a felony.

The question that the courts face when thegovernment elects to file a criminal action iswhat standard of intent is required to be shown.For "negligence" cases, the government hasargued that simple negligence akin to thatfound in the tort law will suffice instead ofhaving to prove highly reckless conduct orgross disregard of risks, standards which aregenerally required for proving criminalnegligence. Defendants have argued that"knowing" or felony violations require proof ofthe more rigorous specific intent rather than themore relaxed general intent standard, whereprosecutors need only prove that the defendantcommitted the act in question, namely, that heknowingly discharged a substance or filed afalse monitoring report, regardless of whetherhe knew it was unlawful to do so, or that thereport was in error.

However, for "knowing endangerment"violations, which can subject a person to up to15 years in prison, Congress required thatviolators must possess actual knowledge thattheir conduct places someone in imminentdanger of death or serious bodily injury, andthat such knowledge cannot be imputed to themby another employee's knowledge. 33 U.S.C. §1319(c)(3)(B); 42 U.S.C. § 6928(f). As will bediscussed, corporate officials nevertheless havebeen prosecuted and convicted for knowingendangerment where it appears that they didnot cause or have actual knowledge of theconditions causing the endangerment.

In 1985, the Supreme Court, in Liparota v.United States, 471 U.S. 419 (1985), was facedwith that question in interpreting a food stampfraud statute that makes it a crime to"knowingly" possess, transfer or use food

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"[W]e have never held that any statute can be described as creating apublic welfare offense so long as the statute regulates conduct that isknown to be subject to extensive regulation and that may involve a risk tothe community. Indeed, such a suggestion would extend this narrowdoctrine to virtually any criminal statute applicable to industrial activities."

Associate Justice Clarence ThomasHanousek v. United States (dissenting from denial ofcertiorari) (2000).

stamps not authorized by law or applicableregulations. The Court required that theprosecutor must prove that the defendant knewhis conduct was unauthorized; otherwise, todispense with a showing of mens rea "would beto criminalize a broad range of apparentlyinnocent conduct." Id. at 426. Similarly, inCheek v. United States, 498 U.S. 192 (1991),the Court held that a defendant could not beconvicted of a "willful" violation of IRS law ifthere was a subjective good faith confusionwith the complex code, even if the belief wasirrational.

The Supreme Court reaffirmed thenecessity of proving mens rea for "knowing"violations in subsequent cases involvingregulatory requirements. For example, inStaples v. United States, 511 U.S. 600 (1994),the Court held that prosecution under theNational Firearms Act, which made it unlawfulto possess a machine gun not properlyregistered with the government, required thegovernment to prove the defendant knew thespecific features of his weapon came within thedefinition of a regulated firearm under the law.Because violations of the firearm law subjecteda person to lengthy prison terms, the Courtconcluded that Congress did not intend toeliminate the mens rea requirement.

Initially, some lower courts also began torequire that "knowing" violations of

environmental laws also required a showing ofspecific intent. General intent, on the otherhand, only requires a showing that the personintended to commit an act that is prohibited,even if the person was unaware of theprohibition. For example, in United States v.Johnson & Towers, Inc., 741 F.2d 662 (3d Cir.1984), the court held that the prosecution ofdefendants charged with disposing hazardouswaste without a permit required the governmentto show that the defendants had a specific intentto violate RCRA. Similarly, in United States v.Speach, 968 F.2d 795 (9th Cir. 1992), the NinthCircuit reversed a conviction in another RCRAillegal storage case, holding that thegovernment had to prove that the defendant hadactual knowledge that the facility did notpossess the required RCRA permit; otherwise,removing the knowledge requirement "wouldcriminalize innocent conduct." Id. at 796.

Unfortunately, this line of cases did notpredominate in the courts. Instead, another lineof case law has developed over the years, whichhas condoned the government's attempt tocircumvent even the more relaxed generalintent requirement for prosecuting regulatoryoffenses, particularly environmental offenses.This troubling jurisprudence was ushered in bythe courts under the rubric of the public welfareoffense doctrine and the related responsiblecorporate officer doctrine.

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Public Welfare Offenses. In United Statesv. International Minerals & Chemical Corp.,402 U.S. 558 (1971), the Supreme Courtconsidered whether the defendant could becharged with a "knowing" violation for failingto properly identify a highly corrosive chemicalon shipping documents without actualknowledge of the law. The Court held thatwhere "dangerous or deleterious devices orproducts or obnoxious waste materials areinvolved, the probability of regulation is sogreat that anyone who is aware that he is inpossession of them or dealing with them mustbe presumed to be aware of the regulation." Id.at 565. Violating safety laws meant to protectthe public is considered a "public welfareoffense," which essentially eliminates the mensrea requirement altogether and imposes strictliability upon those who violate the law,whether wittingly or not.

However, extending the InternationalMinerals holding to all environmentalregulations is problematic in two majorrespects. First, International Minerals involveda misdemeanor violation, where punishmentwould likely result in a small fine rather than inlengthy prison sentences for felony violationsavailable under current environmental statutes.Second, the chemical substance at issue washighly dangerous, whereas many pollutantssubject to environmental laws, such as theCWA and CAA, include benign substancessuch as sand, dirt, and other substances which,at low levels, pose no immediate or irreparableharm, or threat to health or the environment.

Nevertheless, the first major case toaddress mens rea issues stemming from the1987 CWA Amendments in the felony context,extended the logic of International Minerals.In United States v. Weitzenhoff, 35 F.3d 1275(9th Cir. 1993), municipal workers wereconvicted of discharging waste-activated sludgein violation of the permit. The Court classified

the violation as a public welfare offense andheld that the "knowingly violated" provision ofthe statute means only that a person"knowingly engages in conduct that results ina permit violation, regardless of whether thepolluter is cognizant of the requirements oreven the existence of the permit." Id. at 1284.Thus, a prosecutor need only show generalintent to engage in the conduct, a relativelyeasy standard to meet.

As noted by five Ninth Circuit judges whovigorously dissented from the denial ofrehearing en banc in Weitzenhoff by the other19 circuit judges, Congress did not criminalize"knowing discharges," but "knowingviolations," and thus specific intent to violatethe permit requirements was required to beshown. Id. at 1293-94. Since the plant workerswere hired to discharge pollutants up to acertain level, they could easily be prosecutedunder a general intent standard whenever thosepollutants happened to exceed permit levels.Inadvertent exceedances are not a rareoccurrence. Furthermore, since Congress alsoprovided for negligent violations — which donot require a showing of any intent — knowingand negligent violations would becomeimpermissibly blurred if the two categories ofoffenses were treated the same.

More importantly, the dissent clearlydistinguished the public welfare offense rulingin International Minerals from that upon whichthe Weitzenhoff majority relied. First, unlike themisdemeanor statute at issue in InternationalMinerals, the defendants in Weitzenhoff werefacing prison sentences up to 10 years. As theSupreme Court noted in Staples, "the cases thatfirst defined the concept of the public welfareoffense almost uniformly involved statutes thatprovided for only light penalties or short jailsentences. . . [A] severe penalty is a furtherfactor tending to suggest that Congress did notintend to eliminate a mens rea requirement."

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511 U.S. at 616-18. Furthermore, the chemicalsubstance at issue in International Minerals washighly caustic and dangerous to handle. Yet, asthe dissent noted in Weitzenhoff, under theCWA, one could violate the law's prohibitionon unpermitted discharges of "pollutants"simply by "skipping a stone into a lake" or"pouring hot stale coffee down the drain." 35F.3d at 1298. Unfortunately, the SupremeCourt declined to review this critical case. Onthe other hand, in United States v. Ahmad, 101F.3d 386 (5th Cir. 1992), the Fifth Circuit wasthe lone appeals court that did require thegovernment to show that the defendant knew hewas discharging a pollutant in violation of theCWA, ruling that "[s]erious felonies . . . shouldnot fall within the [public welfare] exception`absent a clear statement from Congress thatmens rea is not required.'" Id. at 391.

The Ninth Circuit would again have theopportunity to address the issue of mens reaunder the CWA, but this time in the context ofnegligent conduct. In United States v.Hanousek, 176 F.3d 1116 (9th Cir. 1999), apipeline company hired an independentcontractor to straighten out a section of railwaytrack that required using a backhoe to loadrocks onto rail cars. Unfortunately, when thebackhoe operator attempted to pick up some ofthe rocks that fell onto the track, he accidentallystruck the pipeline. The operator quicklyradioed the pipeline's pump station and thepipeline was shut down. Nevertheless, a smallamount of oil flowed into the nearby SkagwayRiver.

Even though Mr. Hanousek, the railmaster,was off duty and at home, he was criminallycharged and convicted of "negligently"discharging oil in harmful quantities to watersof the United States, a violation of the CWA,because of the negligence of the backhoeoperator. As discussed in the next twochapters, this was a clear case of prosecutorial

abuse because it violated both EPA and DOJguidelines that non-criminal remedies shouldbe used where there is little environmentalharm and an absence of culpable conduct.Moreover, this once-removed negligentconduct was based on ordinary tort negligencestandards instead of typical criminal negligencerequiring reckless conduct. Nevertheless, forhis "crime," Mr. Hanousek, a first-offender,was sentenced under the harsh SentencingGuidelines to the maximum sentence of twelvemonths' imprisonment for a misdemeanor (sixmonths' incarceration and six months in ahalfway house) and an additional six months ofsupervised release. The Ninth Circuit upheldthe conviction and sentence.

The Supreme Court denied review, but ina rare dissent from a denial of certiorari, JusticeClarence Thomas, joined by Justice O'Connor,decried the notion that the CWA could becategorized as a public welfare offense: "[t]heseriousness of these penalties counsels againstconcluding that the [CWA] can accurately beclassified as a public welfare statute."Hanousek, 528 U.S. 1102, 1104 (2000)(Thomas, J., dissenting from denial ofcertiorari). Thus, Justice Thomas recognizedthat substantial prison terms, which can be (andindeed have been) imposed under the CWA andother environmental statutes, should disqualifythese laws as public welfare offenses wherestrict liability can be imposed. Justice Thomasfurther observed that the doctrine couldvirtually cover all criminal laws applicable tocommercial activity when he remarked:

[W]e have never held that any statute canbe described as creating a public welfareoffense so long as the statute regulatesconduct that is known to be subject toextensive regulation and that may involvea risk to the community. Indeed, such asuggestion would extend this narrowdoctrine to virtually any criminal statute

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"The message should be clear that prosecutions will go as high up thecorporate hierarchy as the evidence permits and we will hold seniormanagers of corporations accountable, as well as the corporationitself."

Granta Y. NakayamaEPA Assistant Administrator Office of Enforcement and Compliance Assurance June 12, 2006

applicable to industrial activities. Ipresume that in today's heavily regulatedsociety, any person engaged in industry isaware that his activities are the object ofsweeping regulation and that an industrialaccident could threaten health or safety. Tothe extent that any of our prior opinionshave contributed to the Court of Appeals'overly broad interpretation of this doctrine,I would reconsider those cases. Because Ibelieve the Courts of Appeals invoke thisnarrow doctrine too readily, I would grant

certiorari to further delineate its limits.

Id. at 1104-05. Subsequent petitions to theSupreme Court in other cases urging it toreview and clarify this important issue havealso been denied. See, e.g., United States v.Rubenstein, 403 F.3d 93 (2d Cir. 2005), cert.denied, 546 U.S. 876 (2005). Nevertheless,future opportunities for review are likely toarise as more convictions and prison sentencesare imposed for public welfare offenses.

Responsible Corporate Officer Doctrine.Both the EPA and the Justice Department havebeen overly aggressive in pursuing criminalcharges and prison sentences against companyofficers and the company itself forenvironmental offenses. Under the so-calledresponsible corporate officer doctrine,corporate officers can be held criminally liablefor conduct of their employees even if they didnot participate in the conduct, were unaware ofthe conduct, or specifically forbade the activity.This imputation of criminal liability toindividual officers is a corollary to the publicwelfare offense doctrine in that mens rea couldessentially be dispensed with when consideringboth the nature of the offense and thesupervisory role of the "offender." Accordingly,the responsible corporate officer doctrinesuffers from the same flaws that allow for

abusive prosecution of public welfare offenses.

The Supreme Court articulated the doctrinein United States v. Dotterweich, 320 U.S. 277(1943), and later in United States v. Park, 421U.S. 658 (1975). In Dotterweich, the presidentof a pharmaceutical company was prosecutedfor shipping adulterated and misbranded drugsin violation of the Federal Food, Drug andCosmetic Act (FFDCA). Although theadulteration of the drugs was found to havebeen accidental, the defendant's conviction wasaffirmed. Balancing the relative interests andburdens, the Supreme Court stated:

Hardship there doubtless may be under astatute which thus penalizes the transactionthough consciousness of wrongdoing betotally wanting. Balancing relative

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hardships, Congress has preferred to placeit upon those who have at least theopportunity of informing themselves of theexistence of conditions imposed for theprotection of consumers before sharing inillicit commerce, rather than to throw thehazard on the innocent public who arewholly helpless.

320 U.S. at 284-85.

Thirty years later, the Court once againreviewed a CEO's conviction for adulterationunder the FFDCA. In United States v. Park, theCEO of a retail grocery chain received a noticefrom the Food and Drug Administration ofunsanitary conditions at one of the company'sfood warehouses. Later inspections revealedthat the unsanitary warehouse conditions hadnot been corrected. Because the CEO was in aposition to have prevented the violation, theCourt affirmed the CEO's conviction, stating:

[T]he Act imposes not only a positive dutyto seek out and remedy violations whenthey occur, but also, and primarily, a dutyto implement measures that will insure thatviolations will not occur. Therequirements of foresight and vigilanceimposed on responsible corporate agentsare beyond question demanding, andperhaps onerous, but they are no morestringent than the public has a right toexpect of those who voluntarily assumepositions of authority in businessenterprises whose services and productsaffect the health and well-being of thepublic that supports them.

421 U.S. at 672. Central to the Court's decisionto affirm the convictions in Dotterweich andPark was its finding that the FFDCA violationsat issue were "public welfare offenses."

However, unlike these misdemeanor public

welfare offenses, many environmental lawsestablish felony penalties for knowing conduct.For example, criminal provisions of the CWA,33 U.S.C. § 1319(c)(2)(A), and RCRA, 42U.S.C. §§ 6928(d)(2)(e) & (f) require"knowing" conduct on the part of thedefendant, and for which substantial prisonterms of several years are not only possible,but, likely to be imposed. Prosecutors haveapplied the responsible corporate officerdoctrine to environmental offenses, which hasgenerated conflicting decisions.

For example, in United States v.MacDonald & Watson Waste Oil Co., 933 F.2d35 (1st Cir. 1991), the First Circuit reversed theconviction of a company president for violatingRCRA, because there was no evidence that theofficer actually knew of the violations. TheCourt explicitly stated that the responsiblecorporate officer doctrine should not be appliedto statutes requiring actual knowledge as acriterion for conviction. However, the Courtsuggested that a jury could infer actualknowledge from circumstantial evidence.Indeed, in United States v. Baytank, Inc., 934F.2d 599 (5th Cir. 1991), the Fifth Circuitapparently applied the responsible corporateofficer doctrine implicitly. The Court affirmedthe convictions of two of Baytank's officersapparently without direct evidence that theyactually knew of the RCRA violations, because"both individuals were intimately versed in andresponsible for Baytank's operations." Id. at616-17.

More recently, the Third Circuit reverseda district court judge who dismissed a guiltyverdict against the owner of a dry cleaningbusiness for a RCRA violation. In UnitedStates v. Wasserson, 418 F.3d 225 (3d. Cir.2005), the owner of a dry cleaning businesswas deemed criminally liable for improperdisposal of certain dry cleaning chemicals byan employee who contacted a salvage company

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to dispose of the chemicals. The Third Circuitruled that RCRA liability is not limited to thosewho actually cause the unlawful disposal;therefore, the owner himself could be heldvicariously liable.

The CWA and CAA's definition of"person" raises potential due process issues,because the definition includes "responsiblecorporate officer[s]," under 33 U.S.C. §1319(c)(6); 42 U.S.C. § 7413(c)(6). Thiswould mean that a person could be responsiblefor crimes that she neither committed, nor forwhich she possessed the requisite knowledge.CEOs have no choice but to delegaterespons ib i l i ty for compliance wi thenvironmental laws and regulations tocorporate environmental managers. Under theresponsible corporate officer doctrine, however,delegating responsibility is no defense; aresponsible corporate officer can be convictedwithout knowledge that a specific violation isoccurring. Expanding the responsible corporateofficer doctrine to CWA, CAA, and RCRAfelonies will cause corporate industrialmanagers to rethink their career choice.Applying the responsible corporate officerdoctrine to the prosecution of environmentalfelony offenses, in effect, confers "designatedfelon" status on industrial business managers.As the dissenters noted in Weitzenhoff, it wouldimpose on these officers "a massive legal risk,unjustified by law or precedent." 35 F.3d at1299.

One alarming case that illustrates how theresponsible corporate officer doctrine canensnare company officials is United States v.Hansen, 262 F.3d 1217 (11th Cir. 2001). In1998, Christian Hansen, the owner of a Georgiachemical facility, his son Randall, and AlfredTaylor, the plant manager, were all indictedfour years after the facility was shut down, forviolating the CWA and RCRA, including one"knowing endangerment" count under RCRA,

for violations that occurred nearly six yearsearlier. The last count, which provides for upto 15 years in prison, was based on allegationsthat workers had been exposed to wastewatercontaining mercury. Randall Hansen, aHarvard MBA, who lived with his wife and twochildren in New Jersey, agreed to temporarilyhelp his father operate and manage the Georgiacompany that was in bankruptcy. The plantmanager, Alfred Taylor, accepted the positionafter the relevant period and resigned once thecompany was unable to make repairs to thefacility.

At the trial, only one employee testifiedthat he recalled slipping in the wastewater, butcould not remember in which decade, let alonethe year, the accident took place. He didremember, however, that he failed to report theincident to the company as required bycompany policy and did not seek medicalattention; he simply rinsed himself off andreturned to work. As for the dangerousness ofthe exposure to the mercury in the wastewater,the government's so-called "expert" told thejury that the basis for the Mad Hatter's"madness" in Alice in Wonderland was due tomercury exposure, once used in curing the feltin the hatmaking process.

The jury convicted all defendants on theCWA and RCRA counts, including the oneRCRA "knowing endangerment" count basedon the court's jury instructions on theresponsible corporate officer doctrine: that ifcorporate officers "failed to detect" violationsthat may have been caused by others, thatwould amount to "knowing endangerment"even if they did not know the violation existed.The government argued that Randall Hansenshould have shut the plant down even though,as temporary CEO, he had no authority to doso. Such decisions were subject to approval bythe Board of Directors, the creditors' committeeand the Bankruptcy Court. Indeed, Randall

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Hansen went so far as to seek funds to helpremediate any lingering environmentalproblems after the plant was shut down, but hisfunding request was denied by the BankruptcyCourt. For their "crimes," Christian Hansenreceived eight years in prison, his son Randallreceived four years, and the plant managerreceived six years under the draconianSentencing Guidelines.

It is clear that Congress did not intend tocriminalize, what is, at most, managerialnegligence, as a major felony "knowingendangerment" violation under RCRA whichrequires a willful scienter. Indeed, Congressstated that criminal liability under § 6928(e)should not attach to corporate officers whowere "making difficult business judgments" or"for errors in judgment made without thenecessary scienter, however dire may be thedanger in fact created." S. Rep. No. 96-172 at37-39. The Hansen case starkly illustrates howthe responsible corporate officer doctrine canbe abused by overly aggressive prosecutors andcompliant courts. See also United States v.Hong, 242 F.3d 528 (4th Cir. 2001), cert.denied, 534 U.S. 823 (2001) (criminal liabilityand three-year sentence imposed on owner andinvestor in facility even though he was (1) notan officer of the company, (2) unaware of theviolation, and (3) did not exercise directsupervision over wastewater treatmentoperations).

More recent prosecutions by DOJunderscore the risk corporate officers, and evendirectors face under the responsible corporateofficer doctrine. In March 2007, RoderickHills, an outside director of Chiquita BrandsInternational, and former chairman of the SEC,was being threatened with a felony indictmenteven though he was not a corporate officer. His"crime" was that he voluntarily revealed to theJustice Department that Chiquita's subsidiary inColombia had been making payments to a local

militia group, which had extorted the company,in order to protect its employees from militiaviolence. When DOJ was asked whether thecompany should stop the payments, thenAssistant Attorney General for the CriminalDivision, Michael Chertoff, said he would getback to the company, but never did. Paymentscontinued for the protection of the employeesbut finally stopped. The company was indictedand subsequently was forced to plead guilty inSeptember 2007 for supporting a terroristorganization. Mr. Hills was fortunate to havebeen spared prosecution.

In another miscarriage of justice, threesenior executives of Purdue FrederickCompany were prosecuted and pled guilty inMay 2007 for the unlawful marketing ofOxy Con t in by the company sa lesrepresentatives, even though they had no actualknowledge of or involvement in the offense,thus making them strictly liable under theresponsible corporate officer doctrine.

Willful Blindness and ConsciousAvoidance. Although many federal statutesrequire a conviction based on "knowing"violation of the law, prosecutors have tried todilute the mens rea requirement further andmake their jobs easier by requesting a"conscious avoidance" jury instruction. Suchan instruction allows a jury to convict thedefendant not on actual knowledge hepossessed, but on the grounds that he couldhave known the facts of the unlawful conduct,but was unaware of them because of eitherwillful blindness or conscious avoidance.

The circuit courts are split over whether a"conscious avoidance" jury instruction ispermissible where the statute requires a"knowing" violation. As Circuit JudgeEasterbrook has noted, "[k]nowledge in acriminal statute means actual knowledge. Whatone ought to have known, but did not know, is

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not knowledge; it is not even (necessarily)recklessness." United States v. Ladish MaltingCo., 135 F.3d 484, 488 (7th Cir. 1998). Othercircuits are more liberal in allowing a"conscious avoidance" instruction. See, e.g.,United States v. Svoboda, 347 F.3d 471 (2d Cir.2003); United States v. Heredia, 483 F.3d 913(2007) (en banc). In Heredia, the Ninth Circuitheld, in an opinion written by Judge Kozinski,that a person can be convicted of a "knowing"violation if the defendant did not want to knowthe facts. In a strong dissent, Judge Graber,joined by three other judges, said, "[i]fCongress wants to criminalize willfulignorance, it is free to amend the statute to sayso." Id. at 932 (Graber, J., dissenting). TheSupreme Court declined to review thisimportant mens rea issue on December 10,2007, Heredia v. United States, 128 S. Ct. 804(2007), and before that in Ebbers v. UnitedStates, 458 F.3d 110 (2d Cir. 2006), cert.denied, 127 S. Ct. 1483 (2007).

However, in 2005, the Supreme Courtreversed the conviction of Arthur Andersen onobstruction of justice charges because the juryinstructions "failed to convey the requisiteconsciousness of wrongdoing" with regard tothe shredding of company documents that werelater sought by the SEC in its investigation ofthe collapse of Enron. Arthur Andersen, LLP v.United States, 544 U.S. 696, 706 (2005).Hopefully, the Supreme Court will eventuallyclarify whether "willful blindness" or"conscious avoidance" is sufficient to showcriminal knowledge.

R e c e n t Cr imin a l L e g i s l a t io n .Unfortunately, other recently enactedlegislation has the potential to be abused byDOJ. For example, in March 2006, the USAPATRIOT Act, intended to detect potentialterrorist activity, was amended to allowwiretapping of boardrooms and executives'phone conversations, if a suspected antitrust

violation exists. DOJ has also used otherlegislation in ways not intended by Congress.For example, the Racketeer Influenced &Corrupt Organizations Act (RICO), enacted in1970 to be used against the Mafia, was laterdirected against legitimate businesses. In 1986,Drexel-Burnham Lambert was threatened bythen-U.S. Attorney Rudy Giuliani with acriminal RICO charge for securities violations,pled nolo contendere, and paid a $650 millionfine. Since then, RICO has been invoked inother criminal cases, but more frequently incivil cases by one business against another orby the federal government against a business.

Other recent legislation that unfairlyexposes corporations to criminal liability is theHealth Insurers Portability & AccountabilityAct (HIPAA) enacted in 1996 and theTranspor ta t ion Recal l Enhancem ent,Accountability, and Documentation (TREAD)Act enacted in 2000, criminalizing productliability with respect to defective tires. OnFebruary 25, 2008, Senator Pryor introduced S.2663, a substitute for his Consumer ProductSafety Commission Reform Act of 2007, inresponse to the recall of toys from China. Hisbill would impose massive fines for technicalviolations, allow state attorneys general andplaintiffs' lawyers to bring crippling civillawsuits, and impose five-year prison terms forknowing and willful violations of productsafety laws. The Senate approved the bill onMarch 6, 2008, which will be reconciled with aslightly less severe bill passed by the House inDecember 2007.

S a r ba n e s - O x l e y : C e r t i f i c a t i o nRequirements. While Congress and the courtshave imposed greater liability on corporateofficers for environmental offenses, includingthe filing of false discharge monitoring reports,Congress has also greatly expanded criminalliability in the securities law area with the 2002passage of the Sarbanes-Oxley Act (SOX).

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SOX has been widely criticized as anoverreaction to the Enron and WorldComscandals. "SOX is one of many examples of therecent trend toward using criminal sanctions todeter and punish social and commercialconduct that traditionally has been subject onlyto civil sanctions." HENRY N. BUTLER & LARRY

E. RIBSTEIN, THE SARBANES-OXLEY DEBACLE:WHAT WE'VE LEARNED; HOW TO FIX IT 60(AEI Press 2006). The direct costs ofcomplying with SOX, including its undulyburdensome reporting requirements underSection 404, have been estimated to be $6billion in 2006, with incalculable indirect costs,including reallocating corporate resources frommaximizing shareholder value, reducing accessto markets, and criminalizing corporate agencycosts. Id.

Section 807 of SOX increases the penaltyfor knowingly committing securities fraud upto 25 years, and Section 903 increases relatedmail fraud violations from five to 20 years. Butmore troubling is the certification provision thatimposes criminal liability upon CEOs andCFOs for certifying that complicated financialreports "fairly represent in all material respectsthe financial condition and results of theoperations of the issuer." This criminalprovision alone forces companies to overspendon compliance costs to prevent threats ofcriminal prosecution. Indeed, some publiccompanies are going private and privatecompanies are reconsidering whether theyshould go public.

Moreover, the criminalization of businessactivities by SOX and similar laws may causethe best and brightest to avoid takingresponsible positions for fear that any misstepcould trigger career-destroying prosecution. Astwo critics have pointed out, "[s]oaringpenalties for corporate crimes and dilution of amens rea requirement could have theparadoxical consequence of creating more

corporate crime and not, as the standard storygoes, less." Craig S. Lerner & Moin A. Yahya,`Left Behind' after Sarbanes-Oxley 30 REG. 44(Cato Inst. Fall 2007).

Conclusion. The trend over the last twodecades has been to eliminate mens rea as arequirement for criminal conviction of manyregulatory offenses. Courts have even allowedprosecutors to use "knowing" statutes as if theywere strict liability offenses. Because bothcorporations and corporate officers are beingheld vicariously criminally liable for employeemisconduct, DOJ exerts tremendous leverageover them to waive their rights, extract guiltypleas, and accept severe punishments forregulatory offenses that should be handledadministratively or civilly. Unless legislativereforms are instituted to prevent further erosionof the mens rea requirement in criminalprosecutions, the only recourse is a two-pronged approach: a more judicious use ofprosecutorial discretion (as discussed in thenext two chapters), and more vigilance by thecourts.

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RECOMMENDATIONS

1. The categories of mens rea should be standardized and clarified by the courts and theCongress similarly to the categories of mens rea in the Model Penal Code.

2. Convictions under the public welfare offense and responsible corporate officer doctrinesshould be appealed to circuit courts and the Supreme Court. The lower courts shouldaddress the issue in light of Justice Thomas's dissent to the denial of certiorari in UnitedStates v. Hanousek, and in light of the severe prison sentences currently imposed, whichare in sharp contrast to the lenient sentences that informed the Court's early public welfareoffense jurisprudence.

3. Corporate officers and managers charged with criminal prosecution of federalenvironmental and other regulatory laws should request jury instructions requiring ashowing of criminal intent or actual knowledge, and object to "conscious avoidance" juryinstructions. Convictions for "conscious avoidance" or "willful blindness" for "knowing"offenses should be appealed to the Supreme Court, which should review the issue in lightof the split in the circuits.

4. Violation of agency-promulgated regulations should not be subject to criminal prosecutionunless Congress codifies the regulations.

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REFERENCE MATERIALS

Note: A listing of WLF publications relevant to this chapter can be found in the Appendix.

Randall S. Abate & Dayna E. Mancuso, It's All About What You Know: The Specific IntentStandard Should Govern "Knowing" Violations of the Clean Water Act, 9 N.Y.U. ENV. L. J. 304(2001).

AM. BAR ASS'N, CRIMINAL JUSTICE SECTION, TASK FORCE ON FEDERALIZATION OF CRIMINAL

LAW, THE FEDERALIZATION OF CRIMINAL LAW (1998).

John S. Baker, Jr., Reforming Corporations through Threats of Federal Prosecution, 89CORNELL L. REV. 310 (2004).

JOHN S. BAKER, JR., THE FEDERALIST SOC'Y FOR L. & PUB. POL., MEASURING EXPLOSIVE

GROWTH OF FED. CRIME LEGISLATION (2004).

HENRY N. BUTLER & LARRY E. RIBSTEIN, THE SARBANES-OXLEY DEBACLE: WHAT WE'VE

LEARNED; HOW TO FIX IT (AEI Press 2006).

Kepten D. Carmichael, Strict Criminal Liability for Environmental Violations: A Need forJudicial Restraint, 71 IND. L.J. 729 (1996).

John C. Coffee, Jr., Does Unlawful Mean Criminal?: Reflections on the DisappearingTort/Crime Distinction in American Law, 71 B.U.L. REV. 193 (1991).

Barbara DiTata, Proof of Knowledge Under RCRA and Use of the Responsible CorporateOfficer Doctrine, 7 FORDHAM ENVTL. L.J. 795 (1996).

Lisa M. Fairfax, Form Over Substance?: Officer Certification and the Promise of EnhancedPersonal Accountability under the Sarbanes-Oxley Act, 55 RUTGERS L. REV. 1 (2002).

GENE HEALY, GO DIRECTLY TO JAIL: THE CRIMINALIZATION OF ALMOST EVERYTHING (CatoInst. 2004).

Brenda S. Hustis & John Y. Gotanda, The Responsible Corporate Officer Doctrine: DesignatedFelon or Legal Fiction?, 25 LOY. C. CHI. L. J. 169 (1994).

Han Hyewon & Nelson Wagner, Corporate Criminal Liability, 44 AM. CRIM. L. REV. 337(2007).

Vikramaditya S. Khanna, Corporate Liability Standards: When Should Corporations be HeldCriminally Liable?, 37 AM. CRIM. L. REV. 1239 (2000).

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Amiad Kushner, Applying the Responsible Corporate Officer Doctrine Outside the PublicWelfare Context, 93 J. CRIM. L. & CRIMINOLOGY 681 (2003).

William S. Laufer, Culpability and the Sentencing of Corporations, 71 NEB. L. REV. 1049(1992).

Craig S. Lerner & Moin A. Yahya, `Left Behind' after Sarbanes-Oxley 30 REG. 44 (Cato Inst.Fall 2007).

Erik Luna, The Overcriminalization Phenomenon, 54 AM. U. L. REV. 703 (2005).

Note, Mens Rea in Federal Criminal Law, 111 HARV. L. REV. 2402 (1998).

Julie R. O'Sullivan, The Federal Criminal "Code" is a Disgrace: Obstruction Statutes as CaseStudy, 96 J. CRIM. L. & CRIMINOLOGY (SYMPOSIUM 2006: THE CHANGING FACE OF WHITE-COLLAR CRIME) 643 (2006).

Jeffrey S. Parker, Doctrine of Destruction: The Case of Corporate Criminal Liability, 17MANAGERIAL & DECISION ECON. 381 (1996).

DANIEL RIESEL, The Elements of Mens Rea, ENVIRONMENTAL ENFORCEMENT: CIVIL AND

CRIMINAL, § 6.03. (Law Journal Press 2007).

Kenneth W. Simons, Should the Model Penal Code's Mens Rea Provisions Be Amended?, 1OHIO ST. J. CRIM. L. 179 (2003).

Andrew J. Turner, Mens Rea in Environmental Crime Prosecutions: Ignoratia Juris and theWhite Collar Criminal, 23 COLUM. J. ENVTL. L. 217 (1998).

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TIMELINE: MENS REA, PUBLIC WELFARE OFFENSES, AND THE RESPONSIBLECORPORATE OFFICER DOCTRINE

1909: New York Central & Hudson River R.R. Co. v. United States, 212 U.S. 481 (1909). Supreme Court holds that corporations can be held criminally liable forthe acts of its employees and agents.

1943: United States v. Dotterweich, 320 U.S. 277 (1943). Corporate officers can becriminally liable for conduct even though they did not engage in or condone theconduct under the Responsible Corporate Officer Doctrine.

1952: Morissette v. United States, 342 U.S. 246, 250 (1952). The Supreme Courtunderscores importance of proving mens rea or an evil intent.

1970-1976: Congress enacts Clean Air Act (CAA) (1970); Clean Water Act (CWA) (1972);Resource Conservation and Recovery Act (RCRA) (1976).

1971: United States v. International Minerals & Chemical Corp., 402 U.S. 558, 565(1971). The Supreme Court upholds misdemeanor conviction of "knowing"violation of a law without showing actual knowledge of violation for so-calledPublic Welfare Offenses, e.g., handling dangerous products or hazardouswastes.

1975: United States v. Park, 421 U.S. 658 (1975). Similar to the Dotterweich case, theSupreme Court affirms conviction of corporate officer for a misdemeanor safetyviolation that he did not commit but over which he had authority and control.

1984: United States v. Johnson & Towers, Inc., 741 F.2d 662 (3d Cir. 1984). Courtholds that the prosecution of defendants charged with disposing hazardous wastewithout a permit required the government to show that the defendants had aspecific intent to violate RCRA.

1985: Liparota v. United States, 471 U.S. 419 (1985). In a food stamp fraud case,Supreme Court holds that government must show specific intent.

1987: Congress amends the CWA to provide for felony penalties of up to three yearsin prison for "knowing" violations and up to 15 years for "knowingendangerment" violations.

1987: United States v. Bank of New England, 821 F.2d 844 (1st Cir. 1987), cert. denied,484 U.S. 943 (1987). "Collective knowledge" doctrine allows corporation andofficial to be convicted of crime even though no employee individuallypossesses criminal intent.

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1990: Congress amends the CAA to provide for felony violations similar to those inthe 1987 amended CWA.

1992: United States v. Speach, 968 F.2d 795 (9th Cir. 1992) (government had to provethat the defendant had actual knowledge that the facility did not possess therequired RCRA permit). United States v. Ahmad, 101 F.3d 386 (5th Cir. 1992)(defendant must have actual knowledge that discharged substance waspollutant).

1993: United States v. Weitzenhoff, 35 F.3d 1275, 1284 (9th Cir. 1993). The NinthCircuit classified a felony violation of the CWA as a public welfare offense andupheld conviction when person "knowingly engages in conduct that results in apermit violation, regardless of whether the polluter is cognizant of therequirements or even the existence of the permit." Supreme Court deniesreview.

1994: Staples v. United States, 511 U.S. 600 (1994). The Court held that theprosecution under the National Firearms Act for possessing a machine gun notproperly registered with the government requires showing of specific intent.

1998: United States v. Ladish Malting Co., 135 F.3d 484, 488 (7th Cir. 1998) ("Knowledge in a criminal statute means actual knowledge. What one ought tohave known, but did not know, is not knowledge; it is not even (necessarily)recklessness.").

1999: United States v. Hanousek, 176 F.3d 1116 (9th Cir. 1999). Ninth Circuitupholds conviction for negligent violation of the CWA of manager as result ofnegligent conduct of an independent contractor who accidentally caused pipelinebreak. The Supreme Court denies review, but Justice Thomas dissent criticizesmisuse of the public welfare offense doctrine. 528 U.S. 1102, 1104 (2000).

2001: United States v. Hansen, 262 F.3d 1217 (11th Cir. 2001). Eleventh Circuitupholds conviction and prison sentences of eight, six, and four years forchemical facility's president, vice-president, and plant manager for "knowingendangerment" RCRA violation under responsible corporate officer doctrine.

July 2002: Congress enacts Sarbanes-Oxley Act that imposes duties on corporate officers tocertify that financial reports filed with the Securities and Exchange Commission(SEC) are accurate.

2003: United States v. Svoboda, 347 F.3d 471 (2d Cir. 2003) ("conscious avoidance"jury instruction can result in convicting defendant of a "knowing" violation).

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2005: United States v. Wasserson, 418 F.3d 225 (3d. Cir. 2005) (owner of dry cleaningbusiness could be held vicariously liable for employee's wrongful act).

2005: Arthur Andersen, LLP v. United States, 544 U.S. 696 (2005) (Supreme Courtreverses the conviction on obstruction of justice charges because different juryinstruction "failed to convey the requisite consciousness of wrongdoing").

June 2006: Granta Nakayama, EPA's Assistant Administrator for Enforcement andCompliance, vows that EPA "will go as high up the corporate hierarchy as theevidence permits and we will hold senior managers of corporations accountable,as well as the corporation itself."

2007: Supreme Court declines to review question of whether "knowing" violations canbe based on "willful ignorance." Heredia v. United States, 128 S. Ct. 804 (2007);Ebbers v. United States, 127 S. Ct. 1483 (2007).

May 2007: Three executives of Purdue Frederick Company were prosecuted under theresponsible corporate officer doctrine and pled guilty in May 2007 for theunlawful marketing of drug, even though they had no actual knowledge orinvolvement in the offense.

Mar. 2008: U.S. Senate passes consumer product safety law (S. 2663) sponsored by SenatorPryor in response to China toy recall, which increases criminal penalties to $20million and prison terms to five years.

Chapter Two

Environmental Protection AgencyCriminal Enforcement Policies

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“There is universal consensus that less flagrant violations with

lesser environmental consequences should be addressed through

administrative or civil monetary penalties and remedial orders."

Earl Devaney

Director, EPA Office of Criminal Enforcement (1994)

"I'm a salesman. I sell jail time to people."

EPA Special Agent Criminal Investigation Division (2003)

Chapter Two

EPA CRIMINAL ENFORCEMENT POLICIES

Overview. Established in 1970 byPresident Nixon, the Environmental

Protection Agency (EPA) has grown into alarge federal regulatory and enforcementagency, with over 17,000 employees around thecountry and a budget of $7 billion. Over thelast 30 years, EPA has also developed a robustenforcement program that also has grown insize and budget, with a proposed 2009 budgetof $563 million, of which a record high $52million is allocated for criminal enforcement.EPA conducts over 20,000 inspections a year,any one of which could turn into a criminalaction that can result in substantial fines andlengthy prison sentences.

Instead of utilizing more reasonable andeffective administrative and civil remediesprovided by Congress in the environmentalstatutes — and indeed, as recommended byEPA's own enforcement policy — the EPA hasoften resorted to using criminal proceedings incases where they are unwarranted, becauseeither there was no (or minimal) environmental

harm or a lack of criminal intent or culpability,or both. Moreover, EPA has exercised itsenhanced criminal investigative andenforcement powers in an arbitrary, aggressiveand abusive manner, running roughshod overthe constitutional rights of businesses,managers, and employees.

Unfortunately, the EPA and theDepartment of Justice (DOJ) have exploitedjudicial rulings, as discussed in Chapter One,which relaxed the standard of mens rea orscienter required for "knowing" violations forenvironmental infractions, thereby making iteasy to prosecute and convict by showing onlygeneral intent rather than specific intent forfelony violations. Similarly, EPA and DOJhave invoked criminal misdemeanor provisionsto prosecute acts of simple negligence and haveexploited the public welfare offense andresponsible corporate officer doctrines, alsomaking it easy to level criminal charges andextort plea bargains or obtain convictions. Aswill be discussed in Chapter Three, DOJ has

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aided and abetted EPA in its zeal to criminalizeregulatory enforcement by accep tingquestionable referrals for prosecution from theagency as well as from other federal agenciesthat administer other environmental laws, suchas the U.S. Army Corps of Engineers, theDepartment of Interior, and the NationalMarine Fisheries Service.

To be sure, even EPA's administrative andcivil enforcement activities, which comprise thebulk of EPA's enforcement program, arethemselves often arbitrary, unfair, and punitive.However, this chapter will focus on the growthof EPA's criminal enforcement program,discuss EPA's enforcement practices, providecase examples of arbitrary and abusive criminalenforcement, and offer recommended reforms.

Growth of EPA's Criminal EnforcementResources and Powers. In June 1976, the EPAbegan to develop guidelines for the criminalprosecu tion of the ear l ier enactedenvironmental laws, such as the CWA, CAA,RCRA, as well as the myriad of often vagueand confusing EPA regulations promulgatedpursuant to those laws.

On January 5, 1981, EPA authorized thecreation of the Office of Criminal Enforcementand by September 1982, had hired 23experienced criminal investigators. By August1985, EPA's staff of criminal investigatorsgrew by 50 percent to 34 criminal investigatorslocated throughout each of EPA's 10 regionaloffices. The investigators lacked policepowers, could not execute search warrants, ormake arrests. They relied instead on the agentsfrom the Federal Bureau of Investigation (FBI)to provide assistance in conducting criminalinvestigations.

In 1988, Congress responded to EPA'srequest for increased police powers for itsagents. In a provision of the Medical Waste

Tracking Act, Congress conferred lawenforcement powers on EPA agents, allowingthem to carry firearms and to execute searchwarrants. By November 1990, the number ofEPA Special Agents had again doubled to 55.In response to calls for even more criminalenforcement resources, Congress enacted thePollution Prosecution Act of 1990. That lawrequired an almost a four-fold increase in thenumber of criminal agents by requiring thehiring of at least 200 Special Agents, andprovided for increased funding for enforcementtraining. Despite its enhanced powers, EPAcontinued to use FBI and local law enforcementagents to carry out searches.

In 1994, EPA Administrator CarolBrowner reorganized EPA's enforcement officeand established the Office of Enforcement andCompliance Assurance (OECA), headed by anAssistant Administrator. In that same year,EPA's Office of Criminal Enforcementdeveloped guidelines for selecting criminalcases, which are discussed later in this chapter.In August 1995, the Office of CriminalEnforcement, Forensics, and Training (OCEFT)was established within OECA to manage theCriminal Investigation Division (CID), whichhad grown by then to 210 agents, as Congressmandated. By 2003, the CID staff increased toa record number of 237 agents, highlydispersed, with 90 percent located in area andresident offices around the country. By 2007,the number of CID agents dropped to 172, butmore are expected to be hired as Congresspresses the agency to beef up its cadre ofSpecial Agents.

State/EPA Enforcement. The EPA is ableto leverage its enforcement resources by relyingheavily on state enforcement actions. Majorfederal environmental statutes have delegatedenforcement authority to those states meetingcertain EPA requirements, which, in turn,allows the states to initiate civil actions and

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penalties. These laws also permit the EPA totake enforcement action when the states fail toact or are not tough enough when they do. Thisso-called "overfiling" option raises seriousstatutory authority and double jeopardyquestions, which the courts have addressedwith mixed results.

However, EPA's criminal enforcementprogram is not "delegated" to the states,although EPA often refers environmental casesto the states for enforcement under their ownlaws. The states are increasingly using theirresources to bring criminal actions againstcompanies at the state and local level. Indeed,the EPA, states, and local agencies workclosely together, collect data, shareinformation, and conduct joint investigationsvia the four Regional EnvironmentalEnforcement Associations (REEAs), whichinclude four Canadian Provinces, LawEnforcement Coordinating Committees(LECCs), and Environmental Crime TaskForces on which EPA-CID Special Agentsserve.

Increased Criminal Penalties. In additionto having more criminal enforcement resourcesat its disposal, EPA's criminal enforcementprogram was also shaped by the increase instatutory criminal penalties. In 1987, Congressamended the CWA by upgrading "knowingviolations" from misdemeanors to felonies, andkept simple negligent violations asmisdemeanors, subjecting violators to up to oneyear in prison. Filing a single incorrectmonitoring report, even if no harm occurs, is afelony that can land a plant manager in prisonfor up to two years. Other knowing violations,such as violating permit conditions, howeverminor, provide up to three years in prison; and"knowing endangerment" violations can resultin up to 15 years in prison. A few years later,Congress similarly amended the CAA in 1990by adding felony provisions that provided up to

five years in prison.

In the meantime, the U.S. SentencingCommission issued new Sentencing Guidelinesfor individuals convicted of federal offenses,including environmental offenses thatarbitrarily imposed unusually severe prisonsentences, quite unlike the typical probationarysentence meted out before 1987 for therelatively few criminal prosecutions. Becauseparole was abolished, white-collar defendantswould no longer be eligible for parole afterserving only one-third of their sentence. Thus,as explained in Chapter Seven on theSentencing Guidelines, a post-Guidelinedeterminate sentence of two years in prison isfunctionally equivalent to a pre-Guidelinesentence of six years, which was thenconsidered to be a very severe sentence.

Thus, since 1987, the combination offelony statutory penalties and tougher prisonsentences for environmental violationspropelled overzealous EPA criminal agents torefer cases to DOJ and local federal prosecutorsfor criminal prosecution. And if the local U.S.Attorneys were reticent in pursuing certaincases due to a lack of interest or resources, EPAattorneys would volunteer to be appointed asSpecial Assistant U.S. Attorneys to prosecutethe cases.

Criminal Enforcement Quotas. EPA'scriminal enforcement program appears to bepartly driven by a desire to increaseenforcement statistics rather than to improveenvironmental quality, seemingly as a way tojustify its congressionally-funded resources.Indeed, the EPA sets yearly targets for thenumber of criminal cases it should generate.For example, for fiscal year 2004, the targetnumber set by EPA for criminal investigationswas 400; the actual number was 425 criminalinvestigations. In order "to meet or beat itsnumbers," EPA enforcement personnel are

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therefore likely to treat what should be a civilor administrative matter as a criminal one. Infact, EPA criminal agents report that they havea quota of two criminal referrals a year. U.S.ENVTL. PROTECTION AGENCY, REVIEW OF THE

O FFICE OF C RIMINAL ENFORCEMENT,FORENSICS, AND TRAINING 56 (Nov. 2003).Thus, a cadre of 200 criminal agents isexpected to yield 400 criminal referrals peryear. As one EPA CID Agent put it, "I'm asalesman. I sell jail time to people." Id. at 57.

While the number of DOJ environmentalcriminal prosecutions have decreased slightly,EPA investigations continue to proceed at arelatively brisk pace. The recent SupremeCourt rulings, which struck down themandatory feature of the Sentencing Guidelines(discussed in Chapter Seven), have resulted insomewhat lower prison sentences. However,many judges are still wedded to theunreasonably severe and flawed Guidelines,particularly the Part 2Q EnvironmentalSentencing Guidelines, and mete out harshsentences at the urging of aggressiveprosecutors. See, e.g., United States v.Hagerman, 525 F. Supp. 2d 1058 (S.D. Ind.2007) (five-year prison sentence imposed onowner of treatment facility for making falsestatements on discharge monitoring reportsunder the CWA, even though no environmentalharm resulted and no charges were filed thatfacility exceeded its permit levels).

In addition to the harsh sentences,corporations have spent tens of millions ofdollars for court ordered SupplementalEnvironmental Projects (SEPs) that wereeffectively tagged onto their sentences. SEPsrequire businesses to spend money for pollutioncontrol equipment and projects that otherwiseare not required by law. For example, the costsof the SEPs were $6 million in FY 2004 and$29 million in FY 2006. One year later, itskyrocketed to $135 million for FY 2007, a 350

percent jump from the previous year.

Increased criminal prosecutions can beexpected as EPA acquires more criminalinvestigators, spends millions of dollars forenhanced training and facilities, and continuesto promote EPA's criminal enforcement as apriority. Furthermore, a lack of uniform caseselection procedures among EPA's 10 regionaloffices and the 93 U.S. Attorney Offices meansthat one can never know whether a minorviolation will be handled by non-criminal orcriminal remedies. See generally U.S. GEN.ACCOUNTING OFFICE, ENVIRONMENTAL

PROTECTION: MORE CONSISTENCY NEEDED

AMONG EPA REGIONS IN APPROACH TO

ENFORCEMENT (June 2000). Hence, theregulated community should not be lulled by asomewhat lower number of criminalprosecutions by DOJ in 2007 into thinking thatan infraction will be disposed of by non-criminal remedies.

This is particularly so in light of publicstatements by EPA enforcement officials in2006 and 2007 that criminal enforcement willremain a priority. Indeed, EPA, as part of itspublic awareness efforts, urges citizens to filecomplaints against alleged polluters through alink on its Internet homepage, which hasgenerated additional criminal investigations.Other efforts include the annual NationalEnvironmental Crime Prevention Week held inApril. Launched by the Bush Administration in2002, the activities include having EPA SpecialAgents teach middle school students how todetect and report environmental crimes, usinglesson plans and comic books that depictpolluters as slimy-looking monsters.

The larger public policy question iswhether this increased emphasis on criminalenforcement not only runs afoul of EPA's long-standing policy on the exercise of criminalenforcement discretion, but also jeopardizes the

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civil liberties of individual businesses and theiremployees, both of whom are both entitled tothe fair enforcement of environmental laws andregulations.

The Devaney Memorandum: ExercisingCriminal Enforcement Discretion. As noted,EPA conducts over 20,000 inspections a year,any one of which can turn into a criminalenforcement action. Accordingly, it isimperative that the EPA provide clear caseselection guidance to its enforcement staff. OnJanuary 12, 1994, EPA attempted to do just thatwhen it updated its criminal enforcementpolicy. See Memorandum from Earl E.Devaney, Director, Office of CriminalEnforcement Program, The Exercise ofInvestigative Discretion (Jan. 12, 1994)(Devaney Memo). The Devaney Memo, whichoutlines case selection criteria, was issued inapparent response to criticism about EPA'saggressive and indiscriminate use of criminalproceedings. Hence, the Devaney Memo "setsout the specific factors that distinguish casesmeriting criminal investigation from thosemore a p p r op r i at e ly p ur s u ed u n d eradministrative or civil judicial authorities." Id.at 1. Notably, the Devaney Memo recognizesthe seriousness of EPA's criminal enforcementduties:

[T]he Office of Criminal Enforcementhas an obligation to the Americanpublic, to our colleagues throughoutEPA, the regulated community,Congress, and the media to instillconfidence that EPA's criminalprogram has the proper mechanismsin place to ensure the discriminate useof the powerful law enforcementauthority entrusted to us.

* * *

The criminal provisions of the

environmental laws are the mostpowerful enforcement tools availableto EPA. Congressional intentunderlying the environmen talcriminal provisions is unequivocal:criminal enforcement authority shouldtarget the most significant andegregious violators.

Id. at 2 (emphasis added). The Devaney Memofurther emphasizes congressional intent, notingthat criminal enforcement is not appropriate for"minor or technical variations from permitregulations or conditions." Id. Accordingly,the memo specifies that the case selectioncriteria for criminal prosecution "will be guidedby two general measures - significantenvironmental harm and culpable conduct." Id.(emphasis added).

The Devaney Memo defines "significantenvironmental harm" as "actual harm" that "hasan identifiable and significant harmful impacton human health and the environment" or the"threat" of such significant harm. Id. at 4.Simple failure to report emission data orinformation to the EPA, although a regulatoryviolation, should be subject to criminalinvestigation only when the failure to report "iscoupled with actual or th reatenedenvironmental harm." Id.

As for "culpable conduct," the DevaneyMemo lists several factors to consider, such asa history of repeated violations andconcealment of misconduct or falsification ofrecords. Significantly, a "major factor"indicating culpable conduct is "deliberate"misconduct: "[a]lthough the environmentalstatutes do not require proof of specific intent,evidence, either direct or circumstantial, that aviolation was deliberate will be a major factorindicating that criminal investigation iswarranted." Id. at 5 (emphasis added). Thus,despite the erosion of mens rea or criminal

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intent discussed in Chapter One, the DevaneyMemo, to its credit, calls for a heightenedshowing of intent to warrant a criminalinvestigation.

More importantly, the Devaney Memoconcludes with a cautionary note on initiatingcriminal enforcement actions:

EPA has a full range of enforcementtools available - administrative, civil-judicial, and criminal. There isuniversal consensus that less flagrantviolations with lesser environmentalconsequences should be addressedthrough administrative or civilmonetary penalties and remedialorders, while the most seriousenvironmental violations ought to beinvestigated criminally. Thechallenge in practice is to correctlydistinguish the latter cases from theformer.

Id. at 6 (emphasis added).

On its face, then, the Devaney Memoappears to recognize that criminal enforcementof environmental laws should be the last resort,to be undertaken only where there is bothsignificant environmental harm and genuineculpable conduct, taking into account any pasthistory of violations. Yet, as the following caseexamples illustrate, one has to wonder whetherEPA agents and officials (as well as federalprosecutors) have even read, let alone heeded,the criminal enforcement principles outlined inthe Devaney Memo. At any rate, EPA officialsare not meeting the challenge in practice todistinguish between conduct that warrantscriminal as opposed to civil enforcementactions.

Case Examples of EPA’s Disregard ofDevaney Memo Guidance

Trinity Marine Baton Rouge, Inc. andHubert Vidrine. On September 5, 1996, a"SWAT Team" of some two dozen armedSpecial Agents from EPA's CID, FBI, U.S.Coast Guard, and other state and local lawenforcement officers with police dogs, 9mmhandguns and automatic rifles, raided CanalRefinery Company. Canal is a small Louisianarefinery that allegedly received hazardouswaste in violation of RCRA from TrinityMarine Baton Rouge, Inc. EPA criminalagents, lead by Special Agent Ivan Vikin,confronted Canal's new plant manager, HubertVidrine, accusing him of storing hazardouswaste and lying about it; yelling at employeesthat Mr. Vidrine had been poisoning them andgiving them cancer; threatening employeeswith imprisonment unless they provideddamaging evidence against Mr. Vidrine; andpreventing female employees from using therest rooms for several hours or allowing themto make arrangements to have their childrenpicked up from school and day care, all whileEPA agents continued to ransack offices andsearch the facility for several hours.

After more than three years had elapsedsince the raid, Mr. Vidrine was shocked to hearthe news on the radio on December 15, 1999that he (but not his company) and TrinityMarine, along with its manager, had beenindicted for violating RCRA. Mr. Vidrine wascharged with one count of knowingly storinghazardous waste in a tank at Canal Refinery; hefaced five years in prison and a daily fine of$50,000. He denied any wrongdoing andsteadfastly rejected all attempts by theprosecutors to force him to plead guilty andreceive prison time.

During the pre-trial proceedings, seriousquestions were raised by Mr. Vidrine and his

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co-defendants about the nature of the"hazardous waste" and about the way in whichthis case was initiated and prosecuted by theAssistant U.S. Attorney, Howard Parker, andEPA agents, employees, and consultants.EPA's chief witness, informant Mike Franklin,claimed that he had taken samples of thealleged hazardous waste and had it tested.However, neither the EPA nor federalprosecutors could produce the test resultsal legedly proving RCRA violations.Nevertheless, federal prosecutors and the EPAinsisted on using Mr. Franklin as their keywitness, even though subpoenas issued by theprosecutors to chemical testing laboratoriesfailed to turn up any lab results of the allegedhazardous waste in question. Desperateprosecutors went so far as to place Mr. Franklinunder hypnosis in a vain attempt to obtaininformation about the alleged testing samples.Defense attorneys investigated the unsavorybackground of EPA's star witness. Mr.Franklin's credibility was questionable becauseof a history of cocaine addiction which cancause hallucinations. The court ordered thatMr. Franklin's testimony could not be used.

Undaunted, the federal prosecutor, atEPA's urging, continued to insist that thegovernment should be able to use Mr. Franklinas their key witness and filed a notice of appealto the Fifth Circuit of the judge's ruling. Hereluctantly withdrew the appeal when theSolicitor General's Office wisely decided not toapprove it. On September 17, 2003, on the eveof trial — seven years since the initialSeptember 1996 raid — federal prosecutorsfiled a motion to dismiss the indictment againsta l l th ree d e fe n d an t s , s t at i n g t h at"[d]evelopments in this matter since theindictment have revea led facts andcircumstances which, in the interests of justice,warrant dismissal of the indictment." Thedistrict court granted the motion the next day.

Mr. Vidrine was forced to spend his entireretirement savings of $180,000 on attorney'sfees to mount a four-year defense against thebogus charges, when his company, which wasnot charged, refused to pay his defense fees."Anybody who has to go through this and notlose their sanity or life, it's just amazing. Ididn't think it could happen in America,"Vidrine said after the dismissal.

On July 23, 2007, with assistance from theWashington Legal Foundation, Mr. Vidrinefiled a malicious prosecution lawsuit under theFederal Tort Claims Act against the UnitedStates after the EPA failed to respond to theFTCA administrative claim for damagessubmitted to EPA and DOJ in September 2005.Vidrine v. United States, No. 6:07-cv-1204(W.D. La). On October 31, 2007, thegovernment filed an Answer, denying theallegations in the Complaint and assertingvarious immunity and other defenses. InDecember 2007, the court ordered that copiesof the Grand Jury transcripts be released to theparties for use in the civil suit. Pretrialdiscovery is scheduled through 2008. Clearly,considering the lack of evidence of anyviolation, the absence of environmental harm,and no prior violations, this case did not meetthe criteria for a criminal prosecution under theDevaney Memo.

Riverdale Mills Corporation and JamesM. Knott, Sr. Riverdale Mills Corporation(RMC) is a small manufacturing companylocated in Northbridge, Massachusetts thatproduces plastic-coated steel wire mesh usedfor lobster traps and erosion control. OnOctober 21, 1997, two EPA civil inspectorscame to the facility to take samples of thecompany's rinsewater, and were grantedconditional consent to do so by RMC's owner;namely, that RMC personnel were toaccompany the investigators at all times. Twoweeks later, on November 7, 1997, "a virtual

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`SWAT team' consisting of twenty-one EPAlaw enforcement officers and agents, many ofwhom were armed, stormed the RMC facility toconduct pH samplings. They vigorouslyinterrogated and videotaped employees causingthem great distress and discomfort." UnitedStates v. Knott, 106 F. Supp. 2d 174, 180 (D.Mass. 2000). Business records and computerswere also seized during the all-day search.

With much fanfare, EPA's Regional Officein Boston and the then-U.S. Attorney forMassachusetts, Donald K. Stern (former Chairof the Attorney General 's AdvisoryCommittee), announced to the media on August12, 1998, that RMC and its 70-year-old owner,James M. Knott, Jr., had been indicted on twofelony charges under the CWA and faced sixyears in prison and a $1.5 million fine. Their"crime" was allegedly polluting the nearbyBlackstone River by the facility's discharge intothe public sewer of a small volume of "acidic"rinsewater, with a pH level of less than 5.0standard units, in violation of EPA's pre-treatment CWA regulations. Mr. Knottvigorously denied any wrongdoing.

The EPA did not claim that the town'swastewater treatment facility was damaged inany way by RMC's allegedly acidic rinsewater.Nor were there any allegations that RMC'srinsewater caused the town's treatment facilityto violate any EPA regulations governing itsdischarge of treated water into the nearbyBlackstone River, the very purpose of theseregulations. Indeed, the facility's pH levelswere well within the permitted levels at alltimes. In short, there simply was noenvironmental harm, let alone significant harm;nor was there any history of prior CWAviolations.

When the government was forced by Mr.Knott to turn over the original EPA log booksof the water sample tests from the first visit, the

agents' hand-written notes revealed that lawfuland neutral pH readings of 7 were marked overto look like a 4 and 2, below the requiredminimum of 5 pH. Moreover, the pH readingsfrom the subsequent SWAT team raid allshowed lawful pH readings of 5 or above at thepoint where the public sewer line actuallyconnected to the end of RMC's sewer pipe. OnApril 23, 1999, shortly before trial was tobegin, the U.S. Attorney dismissed all chargesagainst RMC and Knott. The grueling two-yearlegal battle cost the Harvard-educatedbusinessman and his award-winning company(for developing pollution control technology)hundreds of thousands of dollars in lostbusiness and legal defense fees, not to mentiongreat humiliation and distress.

Subsequent lawsuits by RMC and Mr.Knott against the government and EPA agentsunder the Hyde Amendment, Federal TortClaims Act, and Bivens claims, assisted by theWashington Legal Foundation, produced mixedresults and were ultimately denied due toqualified immunity defenses. Riverdale MillsCorp. v. United States, 392 F.3d 55 (1st Cir.2004). Nevertheless, the district courtpointedly "reproved [the EPA] for its sloppyrecording of pH values . . . and subsequentheavy-handed treatment of RMC, including theconduct of an unconsented and thereforeunconstitutional search of the plant. Thatnegligent conduct caused the Plaintiffs, a lawenforcement agency and, ultimately, thetaxpayers unnecessary expense." RiverdaleMills Corp. v. United States, 345 F. Supp. 2d50, 60 (D. Mass. 2004).

The EPA's heavy-handed criminalenforcement tactics against RMC, Mr. Knott,and his employees, were featured on a specialsegment of CBS's 60 Minutes that aired onMarch 25, 2001. Even if the allegations weretrue, Mr. Knott clearly was not one of the "mostsignificant and egregious violators" who caused

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"significant environmental harm" as specifiedin the Devaney Memo so as to warrant usingcriminal enforcement rather than non-criminalremedies.

American Carolina Stamping. On April15, 1999, in a raid similar to the ones carriedout at Canal Refining Company, and RiverdaleMills, 34 armed EPA CID agents, led bySpecial Agent in Charge Ivan Vikin (who alsoled the raid at Canal Refining), U.S. Marshals,and North Carolina state and county policeofficers, some wearing flak jackets, helmets,and body armor, stormed a small family-ownedmetal stamping plant, American CarolinaStamping (ACS), in rural Penrose, NorthCarolina. The "crime" was disposing of acommercial solvent, which EPA alleged was ahazardous waste, in violation of RCRA. Theowner, Steve McNabb, denied any wrongdoing,and when he tried to retrieve his tape recorderto record the event, he was threatened by EPAagents who drew weapons and placed him inhandcuffs. Meanwhile, other EPA agents fromthe Science and Ecosystem Support Division,wearing protective moon suits, took a small soilsample, while other agents searched thepremises for over nine hours. Seven boxes offiles and computer backups were hauled away.Mr. McNabb vigorously complained aboutEPA's strong-armed tactics to his congressman,then-U.S. Rep. Charles Taylor, whoinvestigated the matter.

A grand jury was convened shortlythereafter, and Mr. McNabb insisted onappearing before it, which he did. No criminalcharges were filed. Nevertheless, in themeantime, McNabb's small company had beencut off from all government contracts, uponwhich his business primarily relied. His casewas featured, along with the Riverdale Millscase, on CBS's 60 Minutes in 2001.Unfortunately, McNabb's subsequent lawsuitfor damages against state and federal officials

was dismissed on immunity grounds. McNabbv. North Carolina, 2001 U.S. Dist. LEXIS13181 (W.D.N.C.). But this would not be theend of the matter.

On September 19, 2003, well over fouryears after the 1999 raid (but within the five-year statute of limitations) — during whichtime ACS was never told to cease activity orclean up waste — EPA Region 4 suddenlydecided to initiate administrative proceedings.A Complaint and Compliance Order was issuedthat day alleging the storing and disposing ofhazardous waste in eight drums without apermit, and three related RCRA charges. TheOrder specified penalties up to $27,500 perday, which, computing from the date of the1999 raid, amounted to several hundred milliondollars. McNabb vigorously objected to thebaseless and belated charges.

On October 17, 2003, the EPA, notingsuch mitigating factors as the lack of history ofnoncompliance, reduced the proposed penaltyto $78,759. McNabb complained this time tothe EPA Administrator for Region 4 in Atlanta,Jimmy Palmer. After an on-site visit byPalmer's Chief of Staff, Allen Barnes, Region 4wisely filed a Notice of Withdrawal onNovember 10, 2003, dropping all chargesagainst McNabb's business. Clearly, thisabusive criminal enforcement action shouldnever have been initiated under the caseselection criteria in the Devaney Memo.Indeed, as is evident from the withdrawal of allcharges, it did not even merit administrativeaction.

United States v. Wabash Valley ServiceCo. 426 F. Supp. 2d 835 (S.D. Ill. 2006).While EPA seems to have curbed its penchantfor SWAT Team-type raids in recent years, itcontinues to bring criminal cases that areunwarranted, as determined by the DevaneyMemo. In 2005, a company, its operations

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manager, and another employee werecriminally charged for applying fertilizer pelletscontaining pesticides on a farm in a mannercontrary to the label instructions, in violation ofthe Federal Insecticide Fungicide andRodenticide Act (FIFRA). One generalprovision on the label said that the productshould be applied in a way that would not causeit to come in contact with people, while anotherprovision advised to avoid "spray drift" in"windy" conditions. The defendants moved todismiss the criminal charges because thelabeling was unconstitutionally vague.

In a thorough and well-written 29-pageruling, the court agreed, stating that the labeldid not provide the user with "reasonable noticeof what conduct it proscribes." Id. at 846.Furthermore, since the pesticide was in pelletrather than liquid form, the term "windy" wastoo vague. The court said this was analogous totelling drivers not to drive "too fast." Id. at849. Indeed, the court noted that EPA guidancesuggests that the warning applies only to liquidrather than solid sprays. The court concludedt h a t t h e l a b e l i n s tr u c t i o n s w e r eunconstitutionally vague as applied, but notbefore rebuking the government for evenbringing the case as a criminal matter in thefirst place:

When experienced trial attorneysdecide whether to file a lawsuit, theyoften look at the instructions the courtwill give to the jury if the case makesit to trial. By analyzing what he mustprove to the jury, an attorney canmake a reasonable approximation ofthe strength of his case. The Courtwonders if the government consideredthis simple question.

Id. at 844-45. The Court also was disturbed tolearn that, because some drift will almostalways occur, "every applicator is potentially

subject to criminal liability for what isessentially an unavoidable byproduct of hiswork." The prosecutor replied to a skepticalcourt that he "hope[d] that the governmentwould use its discretion." Id. at 845. In short,the court's ruling suggests that even as a civilmatter, the government's case was exceedinglyweak. The court concluded that "[u]nder thislabel it is not just [that] the marginal situationsare unclear, it is all but the most egregioussituations that are unclear." Id. at 853. Similarto the other cases discussed in this section,bringing this case as a criminal matter againstthe company and two of its employees clearly`violated the Devaney Memo's guidance thatonly the "most significant and egregiousviolators" where there is "significantenvironmental harm" should be criminallyprosecuted.

United States v. Chief Ethanol Fuels Inc.(D. Neb. No. 4:06-cr-03153). Chief EthanolFuels of Nebraska, the nation's leadingproducer of ethanol, which reduces airpollution from auto emissions, was charged in2006 with filing false discharge monitoringreports about the temperature of the wastewaterdischarges from its facility. The waterdischarged into the river ranged between 90degrees and 94 degrees Fahrenheit, but thedischarge report stated that the temperatureswere within the 90 degree limit set by itsdischarge permit. The government did notallege there was any environmental harmcaused by the slightly warmer wastewater. Infact, the company subsequently received a newpermit to allow for discharges of up to 104degrees. Nevertheless, the company wascriminally prosecuted, pled guilty on October25, 2006, fined $100,000, forced to pay another$100,000 to a National Audubon Societyaffiliate, and was placed on probation for oneyear. This reporting violation, which apparentlycaused no environmental harm, is a perfectexample of a case that should have been

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handled administratively or civilly under theDevaney Memo.

United States v. McWane, Inc., 505 F.3d1208 (11th Cir. 2007). McWane, Inc., a castiron pipe manufacturing plant, and three of itsmanagers were charged with dischargingwastewater into a navigable river from morethan one permitted discharge point in violationof the company's permit. The company wasalso charged with one count of making a falsestatement under 18 U.S.C. § 1001 based oncertifications by its manager. The EleventhCircuit reversed the convictions. The courtheld that the government failed to show underJustice Kennedy's "significant nexus" test inRapanos v. United States, that the nearby creekwas connected to a "navigable water." Id. at1221. The court also noted that the EPA failedto show any actual harm or injury, or risk ofharm, to the river that was the navigable water.Id. at 1212. Finally, the court ruled that 18U.S.C. § 1001 is a specific intent crime, andthat the government failed to show actualknowledge of the falsity of the statementsubmitted. Id. at 1229. Because of the lack ofany environmental harm and questionablejurisdiction, this case should have beenresolved with non-criminal penalties.

EPA Management Review. In November2003, EPA officials completed a managementreview study of its enforcement programs andissued its findings and conclusions. EPAREVIEW OF THE OFFICE OF CRIMINAL

ENFORCEMENT, FORENSICS, AND TRAINING

(NOV. 2003). Some candid observations weremade that should hopefully guide and redirectEPA's criminal enforcement efforts. Forexample, the report noted that as anenforcement agency which reacts tocomplaints, there is "little distinction betweenimportant and trivial cases, and a preoccupationwith traditional statistics rather than realaccomplishments, in this case in preventing

pollution." Id. at 58. As the report furtherobserved:

[T]here is a palpable sense withinOCEFT, and especially CID, that thedesire to produce favorable traditionalenforcement statistics — the so-called "bean count" — createspressures for action which may notrepresent the most effective strategicuse of limited investigative andprosecutorial resources. As one agentreport, "It's always quality overquantity until the end of the yearcomes."

* * * *

Many within OCEFT . . . think ofcriminal enforcement as a value initself. As such, they argue that"success" in the traditional measures— in ves t iga t ions , r e f e r r a l s ,indictments, convictions, sentences,probations — justifies the Agency'sinvestment in such activities, andindeed with more investment, theycould get more "results."

* * * *

Without [reform], the program willcontinue [to] be judged solely on numbersof investigative and prosecutorial activitieswithout asking the more importantquestion of what these numbers signify forenvironmental protection.

Id. at 54-55. In a May 2007 memorandum,Granta Nakayam a, EPA's Assis tantAdm inistra tor for Enforcement an dCompliance, directed EPA's criminal agents tobetter document their requests for prosecutorialassistance and made a passing reference to the1994 Devaney Memo as the governing case

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selection guidance. Other than that, EPA hasnot announced what concrete steps it has takenor plans to take in light of this managementreport and the criticism it has received from theregulated community, to redirect and refocus itscriminal enforcement program as originallyintended by the Devaney Memo.

New Enforcement Partnerships: EPAand SEC. The Sarbanes-Oxley Act of 2002imposes reporting obligations in addition to theSecurities and Exchange Commission's (SEC)20-year-old requirements to discloseenvironmental liabilities. Under the law,companies are required to disclose "material"environmental liabilities to better informinvestors about the company's financialexposure; however, the SEC has not providedany clear definition of what is "material,"relying instead on case law. SOX requirescorporate management to sign or certify theaccuracy of the annual environmentalcompliance certifications. If a companyguesses wrong as to what is "material,"individuals certifying a periodic report aresubject to one million dollars in fines and 10years in prison for simple "knowing" offenses,which, as Chapter One discussed, require onlya showing of general intent. For "willful"offenses, company CEOs are subject to a $5million fine and 20 years in prison.

As one leading practitioner observed,"Sarbanes-Oxley has spawned a new era ofcooperation between the U.S. EnvironmentalProtection Agency and the SEC." Steven P.Solow, Greening the Bottom Line:Environmental Management as a CompetitiveTool, EXECUTIVE COUNSEL (Fall 2004). In2003, EPA launched its "environmentalliability enforcement initiative" to enhancesharing of information with SEC about EPAenforcement actions against publicly-tradedcompanies. The EPA is also cross-checkinginformation required to be disclosed in SEC

filings against its own data for consistency andcompleteness.

New Enforcement Partnerships: EPA,OSHA, and DOJ. EPA and the OccupationalSafety & Health Administration (OSHA) begana joint effort in 1991 to enforce certain workersafety violations under related EPA statutesbecause the penalties for environmental lawsare much tougher than those for OSHAviolations and because they are easier to prove.A "knowing endangerment" conviction underRCRA with respect to the storage or disposal ofhazardous waste is a felony that can bring stiffsentences of up to 15 years whereas a "willful"violation of OSHA rules is a misdemeanor, butonly if the violation results in the death of aworker. The maximum prison sentence is sixmonths for the first offense or one year for arepeat offense. In addition, fines for OSHAviolations are much lower than those forenvironmental offenses. This same strategywas launched by then-Attorney General EliotSpitzer in 2004 to use New York environmentallaws to prosecute workplace safety violationsthat otherwise would come under thejurisdiction of OSHA.

A prime example of the misuse ofenvironmental laws to enforce workplace safetylaws was United States v. Hansen, 262 F.3d1217 (11th Cir. 2001). As discussed in ChapterOne, the owner, his son, who agreed totemporarily serve as CEO, and the plantmanager were indicted and convicted of"knowing endangerment" of employees at thechemical plant and received prison termsranging from four to nine years. OSHA hadinspected the plant and the company took somecorrective actions to prevent workers frombeing exposed to certain chemicals. Oneworker testified that he had slipped on the floorand simply rinsed himself off, without seekingmedical treatment for his "minor burns" orreporting the incident to the company. In short,

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this case should have been handled by OSHAor, at best, by administrative or civil remediesunder the environmental statutes.

To be sure, there are some cases whereserious workplace injuries have occurred. InUnited States v. Elias, the owner of a fertilizercompany received a 17-year sentence forknowing endangerment under RCRA when anemployee, who was exposed to cyanide fumesin a sludge tank, suffered brain damage. 269F.3d 1003 (9th Cir. 2001). While this was asignificant injury, and the prison sentence waslonger than the average sentences for murderand rape, the policy question is whetherCongress should revise OSHA penalties ratherthan have prosecutors use EPA laws to punishsafety violations at the workplace.

In May 2005, the EPA, OSHA, and DOJlaunched a more formal initiative to investigateand prosecute violations of environmental lawsand regulations that have harmed workers,rather than the public at large. EPA's vigorouspursuit of these and other OSHA-relatedviolations, however, seems to conflict withinformation posted on its website aboutsubmitting complaints to EPA of suspectedenvironmental violations. Under the categoryof "What Not to Report," EPA provides thefollowing guidance to the public:

Problems with the environment inside

the workplace, such as the presenceor handling of chemicals or noxiousfumes, are under the jurisdiction ofthe Occupational Safety and HealthAdministration, an arm of the U.S.Department of Labor.

www.epa.gov/tips (emphasis in original).Despite this disclaimer, EPA is expected tocontinue to be an active partner not only withOSHA, but with other federal, state, and localagencies and enforcement authorities in using

its criminal investigation and enforcementresources.

New Enforcement Partnerships: EPA,DOT, and DOJ. In September 2003, EPAbegan to work with the Department ofTransportation (DOT) and DOJ in coordinatingenforcement of the Hazardous MaterialsTransportation Act regulating the shipment ofhazardous materials to thwart possible terroristattacks. The result was the prosecution ofdefunct Emery Worldwide Airlines, which pledguilty in 2003 for failing to provide its pilotswith proper paperwork that hazardous materialswere shipped in 1998 and 1999. The companywas fined the maximum of $500,000 for eachof the dozen regulatory violations, for a total of$6 million. Further criminal enforcement isexpected to continue in this area to demonstratethe government's efforts to combat terrorism.

Parallel Investigations. Another majorEPA initiative also suggests that greatercriminal enforcement activity may be loomingon the horizon: closer coordination betweenEPA's criminal and civil enforcement staff.Beginning in July 2005, EPA began tophysically co-locate civil and criminal staff inEPA's regional offices, with a pledge by EPA'sNakayama in early 2006 to continue theprocess and spend millions of dollars ontraining and equipment. The publicly statedgoal was to focus on all major civilenforcement cases as possible candidates forcriminal investigation and prosecution.However, sharing information between civiland criminal enforcement staff raises seriousquestions about potential abusive and unfaircriminal prosecution, such as using civilinvestigations as a pretext to gatherincriminating information for criminal cases.Indeed, as discussed in Chapter Four, the rightto due process, right to counsel, and the rightsagainst self-incrimination and double jeopardy,are weakened by improper joint or parallel

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investigations by the civil and criminalenforcement staff.

Conclusion. EPA's Granta Nakayama hasvowed to "protect the public by criminallyprosecuting willful, intentional, and seriousviolations of the federal environmental laws."U.S. ENVTL. PROTECTION AGENCY, 2006-2011EPA STRATEGIC PLAN: CHARTING OUR COURSE

128 (2006) (emphasis added). The use of thesethree modifiers suggests a strong reaffirmationof the Devaney Memo guidance on criminalcase selection. "Willful" violations generallyrequire a finding of specific intent rather thanthe general intent standard associated with"knowing" violations, the standard of mens reain many environmental statutes. However,Nakayama's statement does not mean that EPAwill criminally prosecute only serious orculpable cases. As one commentator observed,"when it comes to case selection, the ExxonValdez is definitely in, but the mom-and-popdry cleaners is not ruled out." David A. Barker,Environmental Crimes, ProsecutorialDiscretion, and the Civil/Criminal Line, 88 VA.L. REV. 1387, 1409 (2002). Until there is bettersupervision over the case selection process,unwarranted criminal investigations, referrals,and prosecutions will likely continue.

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RECOMMENDATIONS

1. Congress should conduct oversight hearings on EPA's abusive criminal enforcementpolicies and practices and request the Government Accountability Office (GAO) toinvestigate and report on those policies and practices.

2. EPA should conduct a thorough review of the Devaney Memorandum and its applicationto ensure that EPA's criminal enforcement program and case selection procedures, both onpaper and in practice, do not resort unnecessarily to criminal investigation and referralwhen more appropriate administrative and civil remedies are available.

3. EPA should act on its 2003 management review report and enact specific procedures andreforms to ensure that criminal enforcement resources are properly utilized.

4. Before any criminal investigation is undertaken in the field, pre-approval and closesupervision from the appropriate EPA Regions should be required to determine whetheradministrative or civil remedies should be used instead. EPA Headquarters shouldapprove any referral to DOJ or a U.S. Attorney's Office for criminal prosecution. Thiswould help ensure uniformity and procedural fairness.

5. Once a field investigation is authorized, EPA CID Agents should not use strong- armedtactics and harassment in executing search warrants. EPA Agents should advise companyofficials and employees of their rights, including the right to refuse to answer questionsand the right to consult an attorney. Armed EPA agents should refrain from contactingand intimidating employees at their home after work.

6. EPA should consider whether, as a matter of law and economics, a combination ofincreased fines and criminal enforcement actions is an efficient use of resources orwhether it is likely to cause over-deterrence.

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REFERENCE MATERIALS

Note: A listing of WLF publications relevant to this chapter can be found in the Appendix.

Charles J. Babbitt, et al., Discretion and the Criminalization of Environmental Law,15 DUKE ENVTL. L. & POL'Y F. 1 (2007).

David A. Barker, Environmental Crimes, Prosecutorial Discretion, and the Civil/Criminal Line,88 VA. L. REV. 1387 (2002).

Mark A. Cohen, Environmental Crime and Punishment: Legal/Economic Theory and EmpiricalEvidence on Enforcement of Federal Environmental Statutes, 82 J. CRIM. & CRIMINOLOGY 1054(1992).

JOHN F. COONEY, ET AL., ENVIRONMENTAL CRIMES DESKBOOK (Envtl. Law Inst. 1996).

JAMES V. DELONG, OUT OF BOUNDS, OUT OF CONTROL: REGULATORY ENFORCEMENT AT THE

EPA (Cato Inst. 2002).

Inside EPA, New EPA Data Conflict With Agency's Criminal Enforcement Emphasis (Dec. 8,2006).

Timothy Lynch, Polluting Our Principles: Environmental Prosecutions and the Bill of Rights,Cato Policy Analysis no. 223 (1995).

DANIEL RIESEL, ENVIRONMENTAL ENFORCEMENT: CIVIL AND CRIMINAL (New York LawJournal Press 2007).

Steven P. Solow, The State of Environmental Crime Enforcement: Survey of Developments in2006, in BNA ENV'T REP. (Vol. 38, No. 9, March 2, 2007).

Steven P. Solow, Greening the Bottom Line: Environmental Management as a Competitive Tool,EXECUTIVE COUNSEL (Fall 2004).

U.S. ENVTL. PROTECTION AGENCY, 2006-2011 EPA STRATEGIC PLAN: CHARTING OUR COURSE

(2006).

U.S. ENVTL. PROTECTION AGENCY, FY2007 ENFORCEMENT & COMPLIANCE ANNUAL RESULTS:CRIMINAL ENFORCEMENT PROGRAM.

U.S. ENVTL. PROTECTION AGENCY, REVIEW OF THE OFFICE OF CRIMINAL ENFORCEMENT,FORENSICS, AND TRAINING (Nov. 2003).

U.S. GEN. ACCOUNTING OFFICE, Environmental Protection: More Consistency Needed amongEPA Regions in Approach to Enforcement, GAO/RCED-00-108 (June 2000).

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TIMELINE: EPA CRIMINAL ENFORCEMENT POLICIES

1969: National Environmental Policy Act of 1969 is enacted.

1970: Environmental Protection Agency (EPA) is created by an ExecutiveReorganization Plan to assume regulatory authority over certain environmentaland health related laws administered by other agencies.

1970: Congress enacts the Clean Air Act (CAA).

1972: Congress enacts the Federal Water Pollution Control Act, and later amends it in1977 as the Clean Water Act (CWA).

1976: EPA begins to develop guidelines for criminal investigation and enforcement ofenvironmental laws under its jurisdiction.

1985: EPA's criminal enforcement staff grows to 34 agents, 50 percent higher than the1982 level.

1987: Congress amends the Clean Water Act (CWA) to add felony penalties for thefirst time. Filing false monitoring reports provided for up to two years in prison;other "knowing" violations provided for up to three years in prison; and"knowing endangerment" violations provided up to 15 years in prison.

1988: Congress enacts provision in the Medical Waste Tracking Act that conferspolice power on EPA criminal agents and authorizes them to carry firearms inconducting searches.

1990: Congress amends the penalty provisions of the Clean Air Act (CAA) to providefor felony violations similar to those found in the CWA.

1990: Congress enacts the Pollution Prevent Act (PPA) and directs EPA to hire 200criminal enforcement agents.

1991: EPA and OSHA begin joint program on enforcing certain worker safetyviolations.

Jan. 1994: Earl Devaney, Director of EPA's Office of Criminal Enforcement issues aMemorandum, The Exercise of Investigative Discretion. The Devaney Memosets forth criteria for criminal enforcement standards, limiting criminalinvestigations to cases where there is both significant environmental harm and ahigh degree of culpability. However, Memo is ignored in a number of caseswhere there was little or no environmental harm and a lack of criminal intent.

Aug. 1995: EPA established the Office of Criminal Enforcement, Forensics, and Training(OCEFT) within OECA to manage the Criminal Investigation Division (CID),

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which increased to 210 agents.

Dec. 1995: EPA issues policy on "Incentives for Self Policing: Discover, Disclosure,Correction and Prevention of Violations" ("Audit Policy") that tracks SentencingGuidelines' compliance criteria, which, if followed, may warrant reduced civilpenalties and no criminal sanctions. Final version was issued April 2000 at 65Fed. Reg. 19618.

1999-2003: EPA conducts an average of approximately 475 criminal investigations per yearin FYs 1999-2003. Many searches are carried out in an aggressive manner byarmed EPA agents, who threaten employees and harass them at their homes inthe evening, demanding incriminating evidence of their company and theirbosses. By 2003, EPA has criminal enforcement staff of 237.

2003: Following passage of Sarbanes-Oxley in 2002, EPA commences enforcementinitiatives with the Securities and Exchange Commission (SEC) to ensureaccurate reporting of material environmental liabilities.

Nov. 2003: EPA officials complete a management review of its enforcement programs andissue findings and conclusions in a report entitled, U.S. EPA REVIEW OF THE

OFFICE OF CRIMINAL ENFORCEMENT, FORENSICS, AND TRAINING. Notably, theReport criticizes EPA enforcement policy that measures its success by thenumber of prosecutions, fines, and jail time rather than by pollution prevention.

May 2005: EPA, OSHA, and DOJ launched formal initiative to use tougher environmentallaws to prosecute OSHA violations.

2003-2007: EPA coordinates enforcement efforts in various task forces with other regulatoryagencies, including OSHA, Coast Guard, Postal Authorities, and the IRS.

2007: The number of CID agents is reduced to 172, but more agents are expected to behired as Congress presses for more staffing. Criminal investigations continue ata relatively high rate.

May 2007: Granta Nakayama, EPA's Assistant Administrator for the Office ofEnvironmental Compliance Assurance (OECA), revises procedures for EPA'scriminal agents for better documenting their requests for prosecutorial assistanceand reaffirms the Devaney Memo as the governing case selection guidance.

Chapter Three

Department of JusticeCriminal Prosecution Policies

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"The prosecutor has more control over life, liberty, and reputation thanany other person in America. His discretion is tremendous. . . . Anyprosecutor who risks his day-to-day professional name for fair dealingto build up statistics of success has a perverted sense of practical values,as well as defects of character. . . . [He should] select the cases forprosecution . . . in which the offense is the most flagrant, the public harmthe greatest, and the proof most certain. . . ."

Attorney General Robert H. Jackson (April 1940)Second Annual Conference of U.S. Attorneys

Chapter Three

DEPARTMENT OF JUSTICE CRIMINAL PROSECUTION POLICIES

Overview. The Department of Justice(DOJ) and its 93 U.S. Attorney

Offices have, as former Attorney GeneralRobert Jackson poignantly remarked, "morecontrol over life, liberty, and reputation thanany other person in America." How DOJ andfederal prosecutors are guided in the exercise oftheir awesome prosecutorial powers is criticalto our constitutional system, which protectsindividuals and businesses with a right tocounsel, right to a jury trial, and due process,among other important liberties and safeguards.

The judicious exercise of this power isparticularly important with respect toprosecuting individuals and businesses forregulatory offenses, which are not inherentlywrongful. Rather, business regulations restrictotherwise socially useful and beneficialactivities, such as refining oil, producinge n e rg y , m a n u fa c t u r i n g c h e m i c a l s ,pharmaceuticals, and other products, andproviding other goods and services needed by

a modern industrial and free-market society. Atthe same time, these beneficial activitiesprovide jobs and stimulate economic growthand development at the local and nationallevels. Hence, the proper exercise ofprosecutorial discretion is all the moreimportant in this heavily regulated field.

This chapter will discuss DOJ'sprosecution policies and practices, with a focuson the prosecution of environmental andregulatory cases referred by the EPA and otheragencies. In particular, DOJ has oftenneglected to use more appropriate non-criminalremedies to address regulatory infractions,contrary to DOJ's own criminal prosecutionpolicies, as well as EPA's policy as discussed inChapter Two. As Professor John Hasnas hasconcluded, "[w]ith regard to the offenses thatcan adequately be handled by civil liability, theproper solution may be abstaining from anyefforts at criminal enforcement at all." JOHN

HASNAS, TRAPPED: WHEN ACTING ETHICALLY

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IS AGAINST THE LAW 14 (Cato Inst. 2006).DOJ prosecution policies implicate individualand business civil liberties in a number ofways, including parallel civil and criminalprosecutions, attorney-client and work productprivileges, and deferred prosecution and non-prosecution agreements, which are treated inChapters Four, Five, and Six, respectively.

DOJ General Criminal ProsecutionPolicy. In 1980, U.S. Attorney GeneralBenjamin Civiletti promulgated comprehensiveguidelines on how all U.S. Attorneys shouldexercise their prosecutorial discretion. DOJ'sPrinciples of Federal Prosecution, reprinted inDOJ's United States Attorneys' Manual(USAM), properly recognizes the seriousnature of filing criminal charges againstindividuals and corporations, regardless of thesubject matter of the offense.

The manner in which Federalprosecutors exercise their decision-makingauthority has far-reaching implications,both in terms of justice and effectivenessin law enforcement and in terms of theconsequences for individual citizens. Adetermination to prosecute represents apolicy judgment that the fundamentalinterests of society require the applicationof the criminal laws to a particular set ofcircumstances -- recognizing both thatserious violations of Federal law must beprosecuted, and that prosecution entailsprofound consequences for the accusedand the family of the accused whether ornot a conviction ultimately results.

The availability of this statementof principles to Federal lawenforcement officials and to thepublic serves two important purposes:ensuring the fair and effectivee x e r c i s e o f p r o s e c u t o r i a lresponsibility by attorneys for the

gove rn men t , a n d p r o mot in gconfidence on the part of the publicand individual defendants thatimportant prosecutorial decisions willbe made rationally and objectively onthe merits of each case.

USAM 9-27.001 Preface (emphasis added).

As discussed in Chapter One dealing withmens rea, the judicious use of criminalenforcement powers is all the more importantwith respect to prosecuting environmental andother regulatory offenses, since those offensesare not inherently wrongful or malum in secrimes, such as bank robbery or fraud. Rather,they are regulatory offenses involving complexand confusing laws and regulations that can beeasily violated without even knowing that thelaw or regulation exists, or without anyresulting harm. More importantly, there arenon-criminal alternatives that can be and shouldbe used to address and remedy the offense.

Indeed, DOJ's Principles of FederalProsecution for U.S. Attorneys outlines theoptions available to them once they receive areferral from the EPA or other regulatoryagency:

USAM 9-27.200 Initiating and

Declining Prosecution–ProbableCause Requirement.

A. If the attorney for the governmenthas probable cause to believe that aperson has committed a Federaloffense within his/her jurisdiction,he/she should consider whether to:

1. Request or conduct furtherinvestigation;2. Commence or recommendprosecution;3. Decline prosecution and refer thematter for prosecutorial consideration

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in another jurisdiction;4. Decline prosecution and initiate orrecommend pretrial diversion or othernon-criminal disposition; or5. Decline prosecution without takingother action.

Id. (emphasis added).

DOJ thus has ample discretion to declineprosecution altogether, refer the matter to stateauthorities, or to recommend pretrial diversionor other non-criminal disposition as providedby subsections A(3)-(5) with respect toenvironmental and regulatory offenses. Inanother provision of the USAM, DOJ's criminalenforcement policy reiterates the view thatcriminal prosecutions should be declined if"[t]here exists an adequate non-criminalalternative to prosecution." USAM 9-27.220(A)(3).

This policy of utilizing non-criminalremedies is further explained in the USAM asfollows:

USAM 9-17 .150 Non-Criminal

Alternatives to Prosecution.

A. In determining whetherprosecution should be declinedbecause there exists an adequate,n o n - c r im i n a l a l t e r n a t iv e t oprosecution, the attorney for thegovernment should consider allrelevant factors, including:

1. The sanctions available under thealternative means of disposition;2. The likelihood that an effectivesanction will be imposed; and 3. The effect of non-criminaldisposit ion on Fed eral lawenforcement interests.

B. Comment. When a person hascommitted a Federal offense, it is

important that the law respondpromptly, fairly, and effectively. Thisdoes not mean, however, that acriminal prosecution must beinitiated. In recognition of the factthat resort to the criminal process isnot necessarily the only appropriateresponse to serious forms of antisocialactiv i ty , Congress and statelegislatures have provided civil andadministrative remedies for manytypes of conduct that may also besubject to criminal sanction.Examples of such non-criminalapproaches include civil taxproceedings; civil actions under thesecurities, customs, antitrust, or otherregulatory laws; . . . Anotherpotentially useful alternative toprosecution in some cases is pretrialdiversion. See USAM 9-22.000.

Attorneys for the governmentshould familiarize themselves withthese alternatives and should considerpursuing them if they are available ina particular case.

Id. (emphasis added). Unfortunately, DOJprosecutors have often ignored or failed to heedthis policy by failing to take full advantage ofthe non-criminal remedies Congress madeavailable under the environmental and otherregulatory statutes. On the contrary, DOJprosecutors began to use Title 18 lawsgoverning false statements, mail and wirefraud, and conspiracy laws around 1982 to"supplement" their targeting of regulatory andreporting offenses, and to obtain stifferpenalties and punishment than would otherwisebe warranted for the underlying substantiveoffense. Barry M. Hartman & Stephen W.Grafman, Beware Environmental Defendants:Failure To Understand Title 18 Can Get You20, WLF LEGAL BACKGROUNDER, Vol. 9, No.

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22 (July 1, 1994). Indeed, almost half of theRCRA prosecutions from 1983-1992 were Title18 "hybrid" cases. See Kathleen F. Brickey,Charging Practices in Hazardous Waste CrimeProsecutions, 62 OHIO ST. L. J. 1077, 1108(2001).

D O J's Env ir onmenta l Cr imesProsecution Policies. As discussed in ChapterTwo, EPA has not been faithful to the DevaneyMemo's case selection criteria, evidenced by itslaunching of criminal investigations againstcompanies and individuals where there waslittle or no environmental harm and a lack ofculpable intent. However troublesome thatmay be, it would be much better if DOJ andU.S. Attorneys were more selective inaccepting criminal referrals from EPA. All toooften, however, case selection decisions byprosecutors result in abusive, wasteful, andinconsistent criminal enforcement of federalenvironmental laws, as illustrated by the casescited in Chapter Two. See, e.g., U.S. v.Riverdale Mills and U.S. v. Hubert Vidrine,where bogus felony charges were dropped andsubsequent malicious prosecution lawsuitswere filed against the government.

In 1985, DOJ established anEnvironmental Crimes Section (ECS) withinthe Environment and Natural ResourcesDivision. ECS works closely with EPAcriminal investigators, the FBI, and the Fish &Wildlife Service to enforce the majorenvironmental statutes. ECS, which had arecord number of 40 criminal prosecutors as ofOctober 2007, only takes the lead inprosecuting around 30 percent of the cases thatare considered "national interest" cases. Yet,ECS often assists the local U.S. Attorneys inprosecuting environmental offenses and theDepartment, with the agreement of the localUnited States Attorney, may "deputize" an EPAattorney to act as a "Special Assistant U.S.Attorney" to prosecute a specific case.

Thus, the bulk of the criminal enforcementof environmental laws is often initiated andprosecuted by the 93 local U.S. AttorneysOffices around the country rather than underthe uniform guidance of DOJ in Washington,D.C. A minor wetland infraction under theClean Water Act (CWA), for example, may beviewed by one U.S. Attorney's Office as asimple regulatory matter that is better handledadministratively or civilly by EPA or stateauthorities. Yet another U.S. Attorney's Officemay see that same case as warranting a majorfelony criminal prosecution, even if there islittle or no environmental harm, or a lackculpable criminal intent.

To illustrate, in one case, a federalprosecutor filed criminal charges against ahomeowner for poisoning a couple of noisyblackbirds and pigeons roosting on hisproperty. Although the population of thesecommon birds are in the hundreds of millions,they are still covered under the federalMigratory Bird Treaty Act, due to the fact thatsome of migrate between the United States,Canada, and Mexico. The prosecutor shippedthe bird carcasses to the Smithsonian Institutionfor autopsy and considered this "crime" to be"one of the most important cases" of his office.The conviction was upheld on appeal, albeitreluctantly. United States v. Van Fossan, 899F.2d 636 (7th Cir. 1990) (remarking that "[t]hiscase is for the birds"). Other U.S. Attorneys'Offices would hopefully focus on more seriouscriminal activity, given their scarce resources.

In 1987, DOJ's case selection criteria forenvironmental criminal prosecution wasclarified by Assistant Attorney General HenryHabicht of the Land & Natural ResourcesDivision (LNRD), listing four factors toconsider: (1) intent, (2) harm, (3) economicgain to the violator, and (4) repeated offenders.It also focused on two classes of violators, so-called "midnight dumpers" and those who

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concealed violations or made false statements.On July 1, 1991, LNRD's Acting AssistantAttorney General Barry Hartman issued aformal memorandum, Factors in Decisions onCriminal Prosecutions for EnvironmentalViolations in the Context of SignificantVoluntary Compliance or Disclosure Efforts bythe Violator, which encouraged leniency in theexercise of prosecutorial discretion for thosecompanies and individuals that voluntarilydisclosed environmental infractions, cooperatedwith authorities, and had effective complianceprograms. This memo did not purport tosupersede DOJ's 1987 policy or the moregeneral 1980 Principles of Federal Prosecution,both of which require a consideration of intentand harm. Rather, the 1991 memo seems to bean additional policy or overlay that constitutesa further level of case selection criteria after theintent and harm factors have been met. Inmany respects, the 1991 guidance was aprecursor to DOJ's 1999 Holder Memorandum,discussed herein, that also listed voluntarycompliance, disclosure, and cooperation asfactors prosecutors should consider whenconsidering the appropriateness of filingcriminal charges.

Lack of Oversight by Main DOJ. Theautonomy of the U.S. Attorneys inenvironmental prosecution, unlike other areasof federal criminal enforcement such asantitrust, tax, and civil rights, all of whichrequire Main Justice approval, can be traced toa 1994 policy change. In response to sharpcriticism from Congressman John Dingell thatMain Justice was viewed as unduly limiting thediscretion of local U.S. Attorneys to bringenvironmental prosecutions, then-AttorneyGeneral Janet Reno gave U.S. Attorneys muchbroader discretion to bring criminal charges inmost environmental cases, with little or nooversight by Main Justice. This policy wasmade part of the U.S. Attorneys Manual. SeeUSAM 5-11.104 Responsibility for Case

Development and Prosecution. As a result,criminal prosecution of environm entalviolations varied across the country with noreal oversight by Main Justice, often leading toabusive prosecutions and a waste of scarceenforcement resources. Moreover, the lack ofany effective means of assuring that nationallaws are enforced with some degree ofconsistency arguably prevents the developmentof a coherent, effective, and consistent nationalcriminal enforcement policy.

Abuse of Discretion in ProsecutingEnvironmental Offenses. As the followingcases illustrate, DOJ and local U.S. Attorneyshave abused their discretion in prosecutingregulatory offenses. The main criticism is thatthe offenses did not satisfy either EPA'sDevaney Memo, which requires a showing ofsignificant environmental harm and a culpableintent, or DOJ's own prosecution policiesregarding the alternative use of administrativeand civil remedies. Indeed, in manyenvironmental cases, prosecutors haveregularly filed motions in limine or pretrialmotions to prevent the defendant from showingthe jury that no environmental harm occurred.

United States v. Linden Beverage Co. Agood example of unwarranted criminalprosecution is United States v. Linden BeverageCo., Crim. No. 94-122R (W.D. Va), where asmall family-owned apple juice business and itsowner were charged with CWA wastewaterviolations. The pollutants from LindenBeverage consisted primarily of rinsewaterfrom the small bottling company, including amixture of water and apple and grape juices.The owner, Benjamin Lacy, was convicted ofone count of knowingly discharging pollutantsto waters of the United States in excess of thepermitted levels and making false statements ondischarge monitoring reports.

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The discharges from the small facility wereabove the permitted levels, but wereinsignificant and caused no harm to the nearbystream. No fish were killed or even threatened.Even at a short distance downstream from theoutfall, which had been monitored by anenvironmental group, there were never anyconditions indicative of pollution ordegradation; indeed, the group's data showeddissolved oxygen levels at or above the levelsnecessary to support stream life of all kind, butunfortunately, the jury was not allowed to hearthis evidence. Prosecutors successfully filedpre-trial or in limine motions to prevent thedefendants from showing the jury that thenearby stream was not harmed. In short, the"pollution" that occurred was clearly not a"heartland" offense under the CWA wherewaters are fouled and aquatic life harmed.

Federal prosecutors demanded a 33-monthprison sentence for the elderly owner of thefacility, a first offender and pillar of hiscommunity. The court instead imposedprobation, a reasonable sentence which theprosecutors nevertheless appealed. Mr. Lacy'sconviction was overturned by the FourthCircuit because the jury instructions failed toallow consideration of Mr. Lacy's character.United States v. Lacy, 1997 U.S. App. LEXIS35093. The government sought to retry Mr.Lacy again, who finally agreed to plea to amisdemeanor, and who was resentenced to hisoriginal probationary term. This case couldhave — and should have—- been handled byadministrative and civil remedies under theDevaney Memo and DOJ guidelines, due to thelack of environmental harm and the nature ofthe offense as, essentially, a minor reportingviolation. While a persistent pattern of filingfalse reports coupled with environmental harmmay justify a criminal prosecution, under therelaxed intent standard, just one mistake amidthousands of entries is enough to prosecute.

United States v. McNab, 324 F.3d 1266(11th Cir. 2003), cert. denied, 540 U.S. 1177(2004). Three hard-working U.S. seafoodimporters/wholesalers Robert Blandford, AbnerSchoenwetter and Diane Huang (all representedby WLF in the Supreme Court) and oneHonduran seafood exporter, David HensonMcNab, were convicted for the "crime" ofimporting frozen seafood in the wrongcontainers. In an outrageous case of abuse ofprosecutorial discretion, the seafood dealerswere indicted under the Lacey Act forimporting frozen lobster tails from Hondurasallegedly in violation of an obscure Honduranregulation requiring that frozen seafood beshipped in cardboard boxes, instead of intransparent plastic bags. Also, because aboutthree percent of the 70,000 pound shipmentconsisted of lobster tails that were less than 5.5inches in length, those lobster tails allegedlyviolated another Honduran regulation on sizelimits (even though the U.S. National MarineFishery Service, which enforces the Lacey Actand launched the criminal investigation,published official monthly price lists for theU.S. seafood industry, listing the market priceof Honduran spiny lobster tails measuring lessthan 5.5 inches).

At best, this Lacey Act violation shouldhave been subject to administrative or civilpenalties (including civil forfeiture). However,DOJ prosecutors, led by Senior Trial AttorneyElinor Colbourn from Main Justice, broughtadditional criminal charges in order to ratchetup the prison sentence under the SentencingGuidelines, a common tactic for prosecutors to"pile on" redundant charges. Thus, because theseafood was shipped in clear, transparentplastic bags, instead of opaque cardboardboxes, they were also charged with"smuggling," even though the shipmentsregularly cleared through U.S. Customs andFood and Drug Administration (FDA)inspections. Oddly, if the seafood had been

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shipped in opaque cardboard boxes, whichwould need to be ripped open to inspect thecontents, it would not be considered smuggling.

DOJ prosecutors, not content with addingthe smuggling felony charges to the Lacey Actcounts, added more counts by also charging thedefendants with money laundering. Accordingto prosecutors, because the importers paid forthe "illegal" seafood that was "smuggled" intothe country in the normal course of theirbusiness, they were considered to be traffickingin illegal goods in violation of moneylaundering statutes. This novel and troublinguse of the money laundering statute promptedthe trial judge to tell the DOJ prosecutor, "I findthat difficult to understand how that's moneylaundering." United States v. McNab, TrialTranscript, Vol. VI, p. 1060, lines 24-25 (Oct.23, 2000).

For these "crimes," McNab, Blandford,and Schoenwetter, all first offenders, weresentenced to an outrageous prison term of 97months, or eight years under the flawed andharsh Sentencing Guidelines, as well as beingordered to pay stiff fines and to forfeit theirproperty. Ms. Huang, also a first-offender andmother of two small children, was sentenced toprison for two years.

Incredibly, the Honduran regulations thatserved as the predicate for the Lacey Actcharges (and thus, for the smuggling andmoney laundering charges as well) weredeclared by Honduran courts, the HonduranAttorney General, and other high levelHonduran officials, to be null and void,repealed, and otherwise of no legal effect.Nevertheless, in a 2-1 decision, the U.S. Courtof Appeals for the Eleventh Circuit upheld theconvictions and excessive sentences. UnitedStates v. McNab, 331 F.3d 1228 (11th Cir.2003). In a strongly worded dissent, CircuitJudge Fay declared, "what was thought to be a

crime turns out not to be a crime underHonduran law;" therefore, "under both U.S. andHonduran law, retroactive application [of theHonduran rulings invalidating the laws] iswarranted for a criminal defendant charged orconvicted of a subsequently declared invalidcriminal statute." Id. at 1248-50.

On October 24, 2003, WLF filed a petitionfor certiorari to the U.S. Supreme Court onbehalf of the importers, and a separate petitionwas filed on behalf of the exporter, both ofwhich were supported by a brief filed by theGovernment of Honduras. Unfortunately, theCourt denied review on January 15, 2004. Thedefendants are currently serving their stiffeight-year prison terms in federal prison forthese environmental "crimes."

Rapanos v. United States. A propertyowner/developer was criminally prosecuted formoving sand on his property without a permitwhich the government alleged was requiredbecause the property contained wetlandssubject to federal jurisdiction. In the relatedcivil suit, the Supreme Court ultimately ruledthat the federal government did not havejurisdiction over Mr. Rapanos's property.Rapanos v. United States, 547 U.S. 715 (2006).In any event, even if there were federaljurisdiction, the relentless and unnecessarycriminal prosecution of Mr. Rapanos wasclearly an abuse of prosecutorial discretion.The following exchange at Mr. Rapanos'ssentencing hearing in the U.S. District Court forthe Eastern District of Michigan between ChiefJudge Lawrence P. Zatkoff and Assistant U.S.Attorney Jennifer Peregord on March 15, 2005,illustrates the abusive nature of thisprosecution:

THE COURT: I'm asking myself andpeople are asking me, why is thegovernment so determined to send thisdefendant to prison for moving his sand?

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Number one— I think it's a two-prongthing — number one, this defendant is avery disagreeable person. . . . .

Number two, this person . . . had theaudacity and the temerity to insist upon hisconstitutional rights. . . . .

And this is the kind of person that theConstitution was passed to protect. He isexactly the person who should beprotected by the Constitution.

People ask, well, what did this persondump to pollute the waters of the UnitedStates? Did he dump oil, radioactivesubstances, sewage, garbage, herbicides,pesticides, insecticides, fungicides,fertilizer, detergent, lead, iron, copper,mercury, benzene, dioxin, PCB's, PCP's,bacteria, DDT, chlordane, nitrates orcyanide? No. He didn't dump that. Hepolluted the waters of the United States bymoving sand from one area of his propertyto the other.. . . .

I am finding that the average US citizen isincredulous that it can be a crime forwhich the government demands [asubstantial term of] prison for a person tomove dirt or sand from one end of theirproperty to the other end of their propertyand not impact the public in any waywhatsoever.. . . .

MS. PEREGORD: Just very briefly, yourHonor. It is the government's position thatthe likeability or lack thereof of thedefendant had absolutely nothing to dowith this prosecution. Moreover, sand ismore toxic and destructive to wetlands

than any of the substances the Courtmentioned.

United States v. Rapanos, No. 03-20023,Sentencing Transcript at 12, 16 (March 15,2005) (emphasis added).

The government's astonishing response tothe court's valid concerns is remarkable in atleast two major respects. First, the DOJprosecutor did not contest the Court'sobservation that another major factor wasdriving the prosecution, namely, that thedefendant insisted on as serting hisconstitutional rights. Second, the absurdrepresentation to the Court that non-toxic sand"is more toxic and destructive to wetlands" andthe environment than deposits of lead, mercury,radioactive wastes, sewage, and otherpollutants is truly bizarre, undermines DOJ'scredibility, and only serves to furtherdemonstrate why Rapanos is the paradigm ofprosecutorial abuse. Where there is nodemonstrable or significant harm, DOJ shouldrefrain from criminal prosecution.

In other cases, as discussed in ChapterTwo, criminal charges have been droppedbefore trial when prosecutors finally recognizethe cases lack sufficient evidence, even thoughthe defects may have been evident for sometime. For example, in United States v. Knott,106 F. Supp. 2d 174 (D. Mass. 2000), a smallfacility was raided by some 20 armed EPA andother federal agents because its wastewater wasallegedly too acidic. The felony CWA chargeswere dropped shortly before trial when it wasdiscovered that EPA agents had altered criticalpH level readings of the company's wastewater.Further, in United States v. Trinity MarineBaton Rouge, Inc. and Hubert Vidrine, Crim.No. CR99-60053, the government filedindictments against a small chemical companyand plant manager for allegedly violatingRCRA by improperly storing hazardous waste,

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namely, recycled oil. Ironically, another set ofEPA rules actually encourage the used ofrecycled oil. The charges were dropped fouryears later on the eve of trial when defenseattorneys discovered that the EPA's chiefwitness, who allegedly had tested the substanceshowing it met EPA's "hazardous" criteria, wasa cocaine addict who could not recall underhypnosis what he did with the material.

Single Violation-Multiple Jurisdictions.DOJ's environmental prosecution policy alsomerits criticism in those cases where a violationof an environmental statute or regulation occursor has effects in more than one jurisdiction.This may happen where the pollutants oremissions migrate through the environment viathe air or water. These multi-jurisdictionalcases present their own enforcement problems.As one commentator and practitioner put it,"[t]he pattern of prosecutions in the multi-district cases of the last decade demonstratesthat in some cases, the standing Departmentpolicy governing successive prosecutions hasnot been followed, resulting in a substantialwaste of scarce prosecutorial resources andunfairness to corporate defendants." John F.Cooney, Multi-Jurisdictional and SuccessiveProsecution of Environmental Crimes: TheCase for a Consistent Approach, 96 J. CRIM. L.& CRIMINOLOGY 435 (2006). In these cases,companies find themselves facing multiple andsuccessive prosecutions for essentially the sameviolation.

The Holder, Thompson, and McNultyMemoranda. In addition to DOJ's generalPrinciples of Federal Prosecution discussedabove, and the specific guidance forenvironmental prosecutions, DOJ also began toissue supplemental guidance beginning in1999, which focused on the prosecution ofbusinesses.

Holder Memo. On June 16, 1999, the firstrelated memorandum was issued by Eric H.Holder, Jr., then-Deputy Attorney General,entitled Bringing Criminal Charges AgainstCorporations. The Holder Memo lists eightnon-binding criteria for prosecutors to considerin deciding whether to prosecute corporations:(1) the nature and seriousness of the offense,(2) the pervasiveness of the wrongdoing, (3) thecorporation's history of similar conduct, (4)timely and voluntary cooperation, "including,if necessary, the waiver of the corporateattorney-client and work product privileges,"(5) the existence and adequacy of a complianceprogram, (6) the remedial actions taken, (7)collateral consequences on innocent thirdparties, and (8) the adequacy of non-criminalremedies. Many of these factors (exceptwaiver) were modeled after those specified in1991 Sentencing Guidelines on effectivecorporate compliance programs that warrantlenient punishment, discussed further inChapter Seven, and the 1991 DOJ guidancegoverning environmental prosecutions,discussed above, on voluntary disclosure andcooperation. Indeed, footnote one of theHolder Memo expressly refers to theSentencing Guidelines which "rewardvoluntary disclosure and cooperation with areduction in the corporation's offense level."

Corporate Fraud Task Force. On July 2,2002, President Bush established the CorporateFraud Task Force in response to the Enronscandal and other high profile cases, such asWorldCom, which all raised securities fraudissues. Chaired by the Deputy AttorneyGeneral, the Task Force encouraged andcoordinated corporate fraud prosecution bylocal U.S. Attorneys across the country.Congress also enacted the Sarbanes-Oxley Actin 2002 to require greater financial disclosureby corporations and to impose tougher criminalpenalties for obstruction of justice and fraud.One of DOJ's biggest targets was Arthur

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"To lose a case like this is huge. Arthur Andersen was the poster-childof all the corporate fraud cases."

William B. Mateja Former Member of DOJ Corporate Fraud Task ForceJune 1, 2005

Andersen, LLP, which was prosecuted becausethe shredding of internal documents by certainemployees per the company's documentretention policy was viewed as obstruction ofjustice for a yet-to-be instituted Securities and

Exchange Commission investigation of ArthurAndersen's role in the Enron scandal.

Ignoring the collateral consequences toinnocent third parties, as the then-HolderMemo cautioned prosecutors to consider,28,000 innocent employees lost their job whenArthur Andersen was prosecuted and convicted.However, three years later, the U.S. SupremeCourt unanimously reversed the conviction onMay 31, 2005, because the law was vague andthe jury instruction allowed Arthur Andersen tobe convicted even if it honestly and sincerelybelieved that the company's conduct waslawful. Arthur Andersen, L.L.P. v. UnitedStates, 544 U.S. 696 (2005). As William B.Mateja, a former member of DOJ's Task Forceadmitted, "[t]o lose a case like this is huge.Arthur Andersen was the poster-child of all thecorporate fraud cases." Charles Lane, JusticesOverturn Andersen Conviction, WASH. POST,June 1, 2005, at A1. In July 2007, theCorporate Fraud Task Force issued a five-yearreview of accomplishments, noting 1,236corporate fraud convictions, including 214CEOs and presidents; 53 CFOs, 23 corporatecounsels or attorneys, and 129 vice presidents.Some of these cases have been reversed onappeal and others are being challenged.

Thompson Memo. In the midst of theEnron-related scandals, on January 20, 2003,the Holder Memorandum was replaced by amemorandum by Larry Thompson, thenDeputy Attorney General. Renamed asPrinciples of Federal Prosecution of BusinessOrganizations, the Thompson Memo revisedthe Holder Memo by making it mandatory forprosecutors to consider the same eight criteriaas the Holder Memo plus one more, namely,"the adequacy of prosecution of individuals forthe corporation's malfeasance." The primaryemphasis, however, was on ensuring there was"authentic" cooperation, which placed apremium on the same fourth factor as found inthe Holder Memo ("the corporation'swillingness to cooperate in the investigation ofits agents, including, if necessary, the waiver ofcorporate attorney-client and work productprotections"). The ramification of theThompson Memo's emphasis on cooperationand waiver is discussed further in Chapter Five.

Meanwhile, in September 2003, AttorneyGeneral Ashcroft directed U.S. Attorneys to filethe "most serious" charge in a case and seek thetoughest sentence. This policy further forcedmany defendants to plead guilty to "lesser"

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charges, when in reality, the other chargesoverstated the offense. Thus, in someenvironmental cases where the underlyingcharge is only a misdemeanor, collateral falsestatement and mail and wire fraud charges —"most serious" charges with penalties of fiveyears or more in prison — were added on toplace undue pressure on defendants to waivetheir right to a trial and an appeal.

McNulty Memo. On December 12, 2006,the Thompson Memorandum was replaced witha newer version by then Deputy AttorneyGeneral Paul J. McNulty. One of the primaryreasons for the revision was the widespreadcomplaint that under the Thompson Memo,U.S. Attorneys' Offices were unfairlydemanding or pressuring corporate targets towaive their attorney-client privilege in order tobe deemed "cooperative" in a criminalinvestigation and thus, deserving leniency. Theimpact of the Holder, Thompson, and McNultyMemos as they relate to the erosion of theattorney-client privilege is discussed in detail inChapter Five.

Notably, the McNulty Memo reaffirmedthe Thompson Memo in its primary focus oftargeting businesses, but emphasized only asubset of corporate crimes, namely, corporatefraud. When the McNulty Memo was released,the headline of DOJ's Press Release was "U.S.Deputy Attorney General Paul J. McNultyRevises Charging Guidelines for ProsecutingCorporate Fraud" (Dec. 12, 2006) (emphasisadded). In the press release, Deputy McNultytouted DOJ's past efforts "to investigate andprosecute corporate fraud" over the last fiveyears, as part of DOJ's Corporate Fraud TaskForce. Id. (emphasis added). Indeed, in apublic speech the same day, McNulty againemphasized the criminal prosecution of"corporate fraud," making references to Enronand similar cases, and emphasizing theprotection of the investing public and the

integrity of the stock markets. See "PreparedRemarks of Deputy Attorney General Paul J.McNulty at the Lawyers for Civil JusticeMembership Conference Regarding theDepartm ent's Charging Guidelines inCorporate Fraud Prosecutions," (New York,Dec. 12, 2006) (emphasis added).

On March 8, 2007, McNulty againemphasized the prosecution of "corporatefraud" in a speech before the CorporateCounsel Institute in which he noted that "[t]hecornerstone to a sustained law enforcementeffort involving corporate fraud is corporateself-policing." He concluded his remarks bystating: "As the Chairman of the CorporateFraud Task Force, I can tell you that theDepartment is committed as ever to fightingcorporate fraud."

Moreover, corporate general counsel seemto be increasingly targeted by DOJ for civil andcriminal prosecutions. See Association ofCorporate Counsel, ACC REPORTS: IN-HOUSE

COUNSEL IN THE LIABILITY CROSSHAIRS (Sept.2007). In one case, DOJ filed a civil FalseClaims Act lawsuit against the General Counselof Tenet Healthcare based on informationgleaned from an internal 1997 report that thecompany voluntarily released to settle unrelatedcharges in 2006. And while prosecutions in thesecurities area may be down somewhat fromthe earlier Enron days, white-co llarprosecutions continue at a high rate in 2007 inareas such as Medicare fraud and False ClaimsAct cases.

McNulty Memo Equates EnvironmentalOffenses With Fraud. Despite DOJ's repeatedemphasis on fighting "corporate fraud," theMcNulty Memo improperly lumps so-called"environmental crimes," which are regulatoryor mala prohibita offenses, into thefraud/malum in se category; "[f]irst andforemost, prosecutors should be aware of the

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important public benefits that may flow fromindicting a corporation in appropriate cases."McNulty Memo, section II(B). In particular,"certain crimes carry with them a substantialrisk of great public harm, e.g., environmentalcrimes or financial frauds, are by their naturemost likely to be committed by businesses, andthere may, therefore, be a substantial federalinterest in indicting the corporation." Id.(emphasis added).

DOJ's post-Enron emphasis on prosecutingcorporate fraud cases raises distinct legal andpolicy issues that are different from prosecutingenvironmental offenses. In the first place, fraudcases generally require a showing of specificknowledge and intent by individuals, whereasenvironmental offenses can be prosecuted by ashowing of general intent. Accordingly, justicecan be served by prosecuting the culpableindividuals engaged in any such fraud withoutprosecuting the organization, which, as theArthur Andersen case illustrates, prosecutingthe organization has the deleterious effect ofpun i s h in g innocen t employees an dshareholders. More troubling, however, is thatthe McNulty Memo not only sends the wrongand contradictory message by treating so-calledenvironmental crimes on a par with financialfraud, it also leaves unresolved the distinctionbetween an "environmental crime" and a non-criminal infraction. Even where a regulatoryoffense might be categorized as an"environmental crime," DOJ attorneys are stillrequired, by other provisions of the USAM, toconsider whether non-criminal penalties aremore appropriate for this type of regulatoryoffense.

The McNulty Memo may start off in theright direction, by describing DOJ's generalpolicy of prosecuting business organizations forregulatory offenses, but sends a mixed andconfusing message to federal prosecutors. Inparticular, section III of the McNulty Memo,

"Charging a Corporation: Factors to BeConsidered," specifies nine factors that theMemo says "must be" considered in exercisingprosecutorial discretion, factors which areessentially the same factors in determiningwhether to charge an individual. Id. (emphasisadded). One of the factors that must beconsidered is the "adequacy of remedies suchas civil or regulatory enforcement actions,"which is referenced in section XI. Id.However, when one refers to section XI of theMcNulty Memo, the mandatory "must beconsidered" terminology of section III isinexplicably absent; instead, the permissive"may consider" and the hortatory "shouldconsider" language appear as follows:

XI. Charging a Corporation: Non-Criminal Alternatives

A. General Principle: Non-criminalalternatives to prosecution often existand prosecutors may consider whethersuch sanctions would adequately deter,punish, and rehabilitate a corporationthat has engaged in wrongful conduct.In evaluating the adequacy of non-criminal alternatives to prosecution,e.g., civil or regulatory enforcementactions, the prosecutor may consider allrelevant factors, including:

1. the sanctions available under thealternative means of disposition;

2. the likelihood that an effective sanctionwill be imposed; and

3. the effect of non-criminal dispositionon federal law enforcement interests.

B. Comment: The primary goals ofc ri m ina l l aw a re deterrence,punishment, and rehabilitation. Non-criminal sanctions may not be anappropriate response to an egregiousviolation, a pattern of wrongdoing, or ahistory of non-criminal sanctions

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without proper remediation. In othercases, however, these goals may besatisfied without the necessity ofinstituting criminal proceedings. Indetermining whether federal criminalcharges are appropriate, the prosecutorshould consider the same factors(modified appropriately for theregulatory context) considered whendetermining whether to leaveprosecution of a natural person toanother jurisdiction or to seek non-criminal alternatives to prosecution.

Id. (emphasis added). Thus, this subtle butcritical discrepancy in phrasing between themandatory in section III of the McNulty Memoto the permissive in section XI givesprosecutors broader discretion than theyotherwise should have in bringing criminalactions against businesses for regulatoryoffenses. There simply is no effective check onthe abuse of prosecutorial discretion by localU.S. Attorneys or the attorneys in theEnvironmental Crimes Section of Main Justice.

New Enforcement Strategies andPartnerships. As previously noted, DOJ andEPA have been working closely with OSHA inusing environmental laws as a supplement toworker safety laws, due to the environmentalstatutes' greatly increased penalties. This isparticularly true in the area of asbestos removalcases where the CAA has specific provisionsregulating the handling and removal of asbestosfrom buildings. DOJ and EPA have alsoworked jointly with other agencies sharingenvironmental jurisdiction, such as theDepartment of Interior, and the Postal andInternal Revenue Services, where theenvironmental offenses include charges of wireor mail fraud.

In addition, DOJ has established taskforces with the EPA and the Coast Guard to

crack down on violations of the Act to PreventPollution from Ships, which regulates thedischarge of oil and wastes from both cargo andcruise ships. Enforcement is enhanced bywhistleblower provisions that allow thewhistleblower to receive up to 50 percent of thefine levied. Due to vicarious liabilityprinciples, the ship carriers may be liable forthe crime, even where caused by a rogueemployee. Further, beginning in 1992, many ofthe U.S. Attorneys' Offices have set up JointEnvironmental Crime Task Forces (ECTF)around the country with federal, state, and localenvironmental enforcement agencies andprosecutors, to investigate and prosecuteenvironmental violations that often are subjectto both federal and state laws.

Prosecution Trends. From 1998-2006,the number of defendants criminally charged bythe Department of Justice for environmentaloffenses has fluctuated somewhat, from a highof 477 in 2001, to a low of 247 in 2003, but hasaveraged more than 300 per year. In 1998 therewere 350 defendants charged, and in 2005,there were 320, a small decline overall of lessthan 10 percent. The highest rejection rate ofall criminal EPA investigations was in 1998,during the Clinton Administration. In that year,there were 636 EPA criminal investigations,but only 350 defendants were charged. Bycomparison, during the first year of the BushAdministration, 482 criminal investigationsresulted in 372 defendants charged. Regardlessof the modest statistical fluctuations over theyears, both the EPA and DOJ continue to havea robust environmental prosecution policy andthe trend is that such prosecutions will continueto be a priority.

DOJ's War on Drugs: Infringing on theFirst Amendment. Besides using the heavyhand of criminal prosecution against businessesand individuals for minor regulatory offenses

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"[T]he government is trying to criminalize an important potentially life-saving scientific debate. When the government does that, the patientswho have deadly incurable diseases and their families are the ones whosuffer.”

James J. Brosnahan, Esq.Morrison & FoertsterMarch 18, 2008

where non-criminal remedies would be moreappropriate, DOJ is also unfairly targetingpharmaceutical companies for criminalprosecution for questionable regulatoryoffenses. For example, in 2005, Eli Lilly & Co.was prosecuted and forced to plead guilty andpay a $36 million fine for informing doctorsthat its drug Evista was helpful in reducing therisk of invasive breast cancer in

postmenopausal women. Because the FDA hadapproved Evista only for treating osteoporosis,the FDA and DOJ regarded this communicationto be illegal off-label promotion of an FDA-approved drug for a non-approved use.However, doctors are free to prescribe drugs foroff-label use, and indeed, can be sued formalpractice in some cases if they don't.

Prosecuting Eli Lilly clearly implicated theFirst Amendment commercial free speechrights of the company to disseminate truthful,non-misleading information about its drugs todoctors. Furthermore, in September 2007, theFDA finally approved Evista for breast cancer,eight long years after the first results showingthe drug to be effective were published.Clearly, DOJ's prosecution of Eli Lilly wasabusive and unwarranted on several levels. Notonly did it infringe on First Amendmentfreedoms, but it likely will cost lives by overdeterring pharmaceutical companies fromdisseminating the off-label health benefits of itsdrugs. See Scott Gottlieb, Stop the War onDrugs, WALL ST. J., at A1 (Dec. 17, 2007).Indeed, this may have happened when the U.S.Attorney in Philadelphia launched a criminalinvestigation in 2004 against Genentech forallegedly promoting off-label use of Rituxan,another cancer-fighting drug, which was even

touted on the National Cancer Institute's Website. Genentech was understandably reticent todisseminate the good news about another oneof its promising cancer-fighting drug in 2005,Herceptin, which the FDA finally approved in2006.

The latest salvo by DOJ in its war on off-label promotion was fired on March 17, 2008,when DOJ indicted the former CEO ofInterMune, Inc., Dr. W. Scott Harkonen, foroff-label promotion of Actimmune. UnitedStates v. Harkonen, CR 08-0164 (N.D. Ca.).The indictment claims that Dr. Harkonenpromoted Actimmune, approved by FDA forcertain uses, to treat Idiopathic PulmonaryFibrosis (IDF), a fatal disease affecting middle-aged people, for which the FDA had notapproved the drug. However, a New EnglandJournal of Medicine study showed thatimprovement in the conditions of IPF patients

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was associated with Actimmune.

Even though DOJ entered into a deferredprosecution agreement (DPA) with InterMunein October 2006 to resolve civil and criminalcharges, and imposed a fine of $37 million,DOJ abused its prosecutorial discretion byfiling criminal charges against Dr. Harkoneninstead of using non-criminal remedies.Indeed, DOJ's Press Release announcing theindictment quotes Jeffrey Bucholtz, actingAssistant Attorney General for the CivilDivision, further suggesting that the case wasmore suitable for civil resolution. Back in2005, WLF submitted a petition to DOJ to thatend. WLF criticized the manner in whichDOJ's Civil Division, instead of its CriminalDivision, was ostensibly coordinating criminalprosecution with local U.S. Attorneys, leadingto an incoherent and uncoordinated prosecutionpolicy in this critical area.

More troubling about the case is the factthat the indictment against Dr. Harkonen citesto a 2002 press release by his company filedwith the SEC, describing the Phase 3 clinicaltrials for the promising drug. The SEC requiressignificant information about the progress ofclinical trials to be disclosed to the investingpublic, yet, on the other hand, the FDA viewssuch information as unlawful off-labelpromotion. Indeed, in 1996, WLF filed a jointpetition with the FDA and the SEC requestingthe agencies to resolve their conflict on theproper disclosure of the results of clinical trialsfor new drugs. It appears that no correctiveaction was taken by the DOJ, FDA, and SEC onWLF’s petitions and complaints.

Conclusion. In many cases, DOJ is notjustified in accepting criminal referrals from theEPA, the FDA, or other agencies, where theyfail to adequately consider alternative non-criminal remedies, as specified in EPA'sDevaney Memo and in DOJ's internal

prosecution policies. As long as local U.S.Attorneys are able to make their ownprosecutorial decisions with little oversight byMain Justice, one can expect these unwarrantedabusive prosecutions to continue.

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RECOMMENDATIONS

1. DOJ should require the referral agency, whether it is the EPA, the National MarineFisheries Services, the Department of Interior, the FBI, the FDA, or another agency, tojustify the expenditure of DOJ's scarce prosecutorial resources, as opposed to usingadequate administrative and civil remedies.

2. All criminal prosecutions for environmental violations by local U.S. Attorneys should beapproved by Main Justice to ensure a uniform and consistent national enforcement policyin the same way that prosecutions for antitrust and tax violations are approved.

3. Criminal prosecutions should be reserved for egregious cases where the violation results insubstantial environmental damage that is irremediable or causes serious bodily harm andwhere there is culpable conduct reflected by past violations and a high degree of specificintent to deliberately violate the law.

4. DOJ should establish an environmental enforcement policy review group or task forcecomposed of appropriate representatives from DOJ, including DOJ's Environmental andNatural Resource Division, Criminal Division, and the Attorney General's AdvisoryCommittee (AGAC), including its Environmental Issues Subcommittee. The task forceshould conduct a thorough review of all of its enforcement policies, including the 1994Reno policy; the handling of multi-jurisdictional violations; and the practice of successiveprosecutions by U.S. Attorneys' Offices for the same offense.

5. DOJ should decline to prosecute pharmaceutical companies for off-label promotion ofFDA-approved drugs where there is no serious allegation that the information beingdisseminated is false or misleading. Moreover, the Criminal Division, rather than the CivilDivision, should be coordinating criminal enforcement efforts with local U.S. Attorneys,as WLF recommended to DOJ in 2006.

6. The McNulty Memo should be amended to make the consideration of non-criminalalternatives in section XI mandatory rather than permissive for prosecutors when makingtheir charging decisions, particularly for environmental and other regulatory offenses.

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REFERENCE MATERIALS

Note: A listing of WLF publications relevant to this chapter can be found in the Appendix.

ASSOCIATION OF CORPORATE COUNSEL, ACC REPORTS: IN-HOUSE COUNSEL IN THE LIABILITY

CROSSHAIRS (Sept. 2007).

Katy Bartelma, et al., Environmental Crimes, 44 AM. CRIM. L. REV. 409 (2007).

Kathleen F. Brickey, Charging Practices in Hazardous Waste Crime Prosecutions, 62 OHIO ST.L. J. 1077 (2001).

Pamela H. Bucy, Trends in Corporate Criminal Prosecutions, 44 AM. CRIM. L. REV. 1287(2007).

John F. Cooney, Multi-Jurisdictional and Successive Prosecution of Environmental Crimes: TheCase for a Consistent Approach, 96 J. CRIM. L. & CRIMINOLOGY 435 (2006).

Inna Dexter, Regulating the Regulators: The Need for More Guidelines on ProsecutorialConduct in Corporate Investigations, 20 GEO. J. LEGAL ETHICS 515 (2007).

George Ellard, Making the Silent Speak and the Informed Wary, 42 AM. CRIM. L. REV. 985(2005).

Scott Gottlieb, Stop the War on Drugs, WALL ST. J., at A1 (Dec. 17, 2007).

JOHN HASNAS, TRAPPED: WHEN ACTING ETHICALLY IS AGAINST THE LAW (Cato Inst. 2006).

Leonard Orland, The Transformation of Corporate Criminal Law, 1 BROOK. J. CORP. FIN. &COM. L. 45 (2006).

Joseph F. Savage & Stephanie A. Martz, How Corporations Spell Relief: Substituting CivilSanctions for Criminal Prosecutions, 11 CRIM. JUST. 10 (Spring 1996).

U.S. ENVTL. PROTECTION AGENCY, FY1998-FY2006 CRIMINAL ENFORCEMENT PROGRAM

ACTIVITIES.

Christopher A. Wray & Robert K. Hur, Corporate Criminal Prosecution in a Post-EnronWorld: The Thompson Memo in Theory and Practice, 43 AM. CRIM. L. REV. 1095 (2006).

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TIMELINE: DOJ CRIMINAL PROSECUTION POLICIES

1980: U.S. Attorney General Benjamin Civiletti promulgates Principles of FederalProsecution to serve as guidelines for all U.S. Attorneys on the exercise ofprosecution discretion for all federal crimes. Published in the U.S. AttorneysManual (USAM), the Principles emphasize that prosecutors should considerdeclining criminal prosecution for regulatory offenses that have non-criminalalternative remedies. USAM 9-17.150.

1991: DOJ Land and Natural Resources Division issues Criminal Enforcement PolicyMemorandum on Voluntary Compliance and Disclosure, which is a precursor tothe 1999 Holder Memorandum.

1992: DOJ begins establishing Environmental Crime Task Forces (ECTF) with U.S.Attorneys Offices, to include working with other federal agencies such asOSHA, IRS, Postal Service, Department of Interior, Fish & Wildlife Service, aswell as state and local environmental enforcement agencies.

1994: Attorney General Janet Reno, responding to criticism from Congressman JohnDingell, changes DOJ's oversight of environmental prosecutions and gives morediscretion to local U.S. Attorneys to initiate criminal prosecution in this area.See USAM 5-11.104 Responsibility for Case Development and Prosecution.

June 1999: Holder Memo: Deputy Attorney General Eric Holder, Jr. issues Memorandum,Bringing Criminal Charges Against Corporations. The Holder Memo consistsof non-binding criteria for prosecutors to consider in assessing a corporation'scooperation in a criminal investigation to warrant more lenient treatment,including whether it disclosed wrongdoing, waived attorney-client privileges,and advanced legal defense fees to suspected employees.

Mar. 2002: Arthur Andersen, LLP indicted in connection with Enron scandal.

July 2002: President Bush establishes Corporate Fraud Task Force, chaired by the DeputyAttorney General, in response to Enron-related fraud scandals.

July 2002: Congress enacts Sarbanes-Oxley Act that imposes duties on corporate officers tocertify that financial reports filed with the Securities and Exchange Commission(SEC) are accurate, including reporting on material environmental liabilities.

Jan. 2003: Thompson Memo: Deputy Attorney General Larry Thompson revises HolderMemo and issues Memorandum, Principles of Federal Prosecution of BusinessOrganizations. Thompson Memo makes it mandatory that prosecutors considerthe various factors to assess whether a company under investigation is

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"authentic" with its cooperation.

Sept. 2003: Attorney General Ashcroft directs U.S. Attorneys to file the "most serious"charges in a case and seek the toughest sentence.

2004-2005: DOJ investigates or prosecutes Genentech, Warner-Lambert and Eli Lilly foroff-label promotion of lifesaving anti-cancer drugs.

Jan. 2005: The U.S. Supreme Court reverses the conviction of Arthur Andersen. Arthur Andersen, L.L.P. v. United States, 544 U.S. 696 (2005).

Dec. 2006: McNulty Memo: Deputy Attorney General Paul McNulty, responding towidespread criticism, revises Thompson Memo, placing stricter restrictions onthe discretion of U.S. Attorneys to seek waiver of attorney-client privileges andcurtailing advancement of defense fees to employees. McNulty Memo reiteratestargeting corporations in financial fraud cases, but includes "environmentalcrimes" in the corporate fraud category.

Mar. 2007: McNulty announces that DOJ's Corporate Fraud Task Force which he chairs, iscommitted to prosecuting corporate fraud as a continued priority.

July 2007: Corporate Fraud Task Force issues five-year review of accomplishments, noting1,236 corporate fraud convictions, including 214 CEOs and presidents, 53CFOs, 23 corporate counsels or attorneys, and 129 vice presidents. Some ofthese cases have been reversed on appeal or are being challenged.

Mar. 2008: DOJ indicts Dr. Scott Harkonen, former CEO of InterMune, for promoting off-label use of FDA-approved drug to treat fatal disease, despite entering intodeferred prosecution agreement with company two years earlier. Indictmentrelies on press release by company filed with the SEC describing clinical trialresults.

Chapter Four

Parallel Civil and Criminal Prosecutions

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"The ‘criminalization’ of the environmental regulatory scheme presentsgrave issues relating to the standards upon which convictions can bemaintained, and questions of fundamental fairness to members of theregulated community who now may face parallel civil and criminalactions for what appears to be the same activity."

Daniel Riesel, Esq.ENVIRONMENTAL ENFORCEMENT: CIVIL AND CRIMINAL

(New York: Law Journal Press 2007)

Chapter Four

PARALLEL CIVIL AND CRIMINAL PROSECUTIONS

Overview. Many federal regulatorystatutes, including environmental,

securities, and health care laws, provide foradministrative, civil and criminal enforcementremedies. Agency attorneys and prosecutorshave broad discretion over which remedy topursue. Corporations are often forced to defendthemselves simultaneously on several fronts,responding to regulatory enforcement actions,civil lawsuits, and criminal investigations forthe same alleged misconduct. While paralleland successive criminal and civil cases havealways posed a challenge for a corporation, thegrowing prevalence of parallel investigationshas significantly increased the risk that theconstitutional rights of corporations and theiremployees will be violated.

While administrative and civil remediesare more appropriate in resolving manyregulatory offenses (discussed in Chapters Twoand Three), overly zealous prosecutors oftenabuse their discretion by either bringingcriminal charges while civil proceedings arepending or after they are completed. Moresinister, however, is the practice of initiating

administrative or civil proceedings as a pretextfor obtaining incriminating evidence for use ina subsequent criminal prosecution. In the latterscenario, investigators from the Securities andExchange Commission (SEC) or otherregulatory agencies lull their targets intothinking that the matter is being investigatedonly as a civil matter.

In these circumstances, serious publicpolicy and constitutional issues are raised underthe Double Jeopardy, Self Incrimination, EqualProtection, and Due Process Clauses. Indeed,in several recent cases discussed herein, courtshave barred prosecutors from using testimonyprovided by the defendant in the related civilproceeding. In a few cases, courts have gone sofar as to dismiss the indictments altogether forserious prosecutorial misconduct, includingdeceit, trickery and fraud. Unfortunately, thereis a growing trend to use parallel civil andcriminal prosecutions. This abusive practiceshould be curtailed by the Department ofJustice, SEC, and other agencies. Moreover,courts should provide closer scrutiny andimpose appropriate sanctions to deter thispractice.

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Parallel Prosecution Policy forEnvironmental Offenses. In 1987, the JusticeDepartment's Land and Natural ResourcesDivision issued Directive No. 5-87, Guidelinesfor Civil and Criminal Parallel Proceedings inthe environmental area. First, criminalenforcement proceedings were to be undertakenbefore any civil action, except where there wasimminent and significant harm to theenvironment, in which case quicker civilinjunctive relief should be first sought.Obtaining a criminal conviction, which requiresa higher level of proof (beyond a reasonabledoubt) than that for a civil proceeding(preponderance of the evidence), would makeit easier to establish liability in a subsequentcivil proceeding under collateral estoppelprinciples. Second, information gatheredduring the criminal investigation could only beshared with civil enforcement attorneys.However, information gleaned from anyadministrative or civil proceedings could beshared with criminal prosecutors as long asthere was a "good faith" basis to undertake anadministrative or civil investigation that was"objectively reasonable," and that the civilinvestigation was not a pretext for building acriminal case.

When enforcing environmental laws andregulations, EPA and other agency personnelwould on occasion conduct inspections at a siteand, soon thereafter, initiate administrative orcivil proceedings, only to switch quickly tocriminal prosecution as the preferredenforcement vehicle. This practice raisesquestions as to whether the civil proceedingswere indeed a pretext for bringing criminalcharges. For example, in United States v.Pozsgai, 999 F.2d 719 (3d Cir. 1993), DOJcivil enforcement attorneys obtained atemporary restraining order to enjoin a propertyowner from placing clean fill on his propertydeemed a regulated wetland without a permit.Yet, a few days before the civil enforcement

proceedings began, the property owner wasarrested and prosecuted, much to the surpriseand dismay of the judge handling the civilmatter. Following Mr. Pozsgai's criminalconviction, the civil proceedings resumed, butDOJ's argument that collateral estoppel shouldbar relitigation of civil liability did not prevail.The owner's wife, who had not been criminallyprosecuted, was also named by the governmentin the civil suit but had not yet had her day incourt. DOJ's offer to drop her as a party fromthe civil suit was opposed by her and rejectedby the court. Not surprisingly, the court ofappeals, having upheld the criminal convictionwithout any opinion, ruled in favor of thegovernment in the civil appeal despite validarguments that there was no jurisdiction overthe isolated wetland.

Similarly, in United States v. Knott, 106 F.Supp. 2d 174 (D. Mass. 2000) (discussed inChapter Two), civil inspectors inspected afacility in late October 1997 to sample the pHlevels of the wastewater and allegedly foundthe pH levels to be below the minimum level of5 pH. Within two weeks — a suspiciouslyshort period of time following the civilinspection — a 21-man "virtual SWAT Team,"as the trial court later described it, raided thefacility for more sampling and seizing records.Id. at 180. The timing of the civil inspectionand criminal raid suggested that the civilinspection was a pretext for obtaining thecriminal search warrant. One month after theraid, a routine administrative notice of violation(based upon the civil inspection) was issued forthe alleged infraction, further suggesting a pre-planned criminal prosecution. Thus, the felonycriminal charges subsequently brought againstthe facility and its owner completely co-optedthe routine administrative proceeding. Allcriminal charges were dropped shortly beforetrial, but only after it was discovered that theEPA civil inspector had altered the pH levelreadings in his log book, and had taken the

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sample in violation of the owner's qualifiedconsent to search the facility.

Supreme Court Rulings. As noted,parallel and successive civil and criminalprosecutions raise self-incrimination, doublejeopardy and other related constitutionalquestions. In United States v. Kordel, 397 U.S.1 (1970), the Court held that evidence obtainedfrom a civil investigation can generally be usedlater in a criminal investigation withoutviolating the self-incrimination or due processclauses. But if the civil proceeding wasbrought solely to obtain information for acriminal investigation, or if the governmentattorney fails to notify the civil target that he isalso a criminal target, then the right againstself-incrimination is violated. While remainingsilent in a criminal investigation cannot be usedagainst a defendant, the same is not true in acivil proceeding. Asserting one's right toremain silent in a civil proceeding can beconstrued against the defendant; hence, a civiltarget may be pressured to cooperate withgovernment attorneys if they believe that nocriminal proceedings are underway or likely tooccur.

As for the Double Jeopardy Clause, in1989, the Supreme Court was faced with thequestion of whether the clause is violatedwhere there is an imposition of civil finesfollowing a criminal conviction. In UnitedStates v. Halper, 490 U.S. 435 (1989), amedical laboratory manager was prosecutedand convicted for "upcoding" 65 office visitclaims, resulting in a total loss to thegovernment of only $585. He was sentenced toprison for two years and paid a fine of $5,000.Not satisfied with this significant criminalpunishment, the government sued Mr. Halperunder the False Claims Act, seeking over$130,000 in damages based on the civil penaltystatutory formula of $2,000 per violation.

Mr. Halper argued that the civil fines wereso excessive that they constituted a secondpunishment for the same offense, and hence,were barred by the Double Jeopardy Clause.The Supreme Court unanimously agreed,finding that the penalty imposed was "soextreme and so divorced from theGovernment's damage and expenses as toconstitute punishment." 490 U.S. at 442. Thus,the imposition of civil penalties following acriminal prosecution would be barred if theprimary purpose of the civil sanctions was topunish or deter the conduct in question.Likewise, Halper suggested that the oppositecould be true: imposing punitive civil penaltiesfirst could foreclose subsequent criminalprosecution under the Double Jeopardy Clause.To avoid that scenario from happening, DOJ'sCivil Division devised a so-called "Halperwaiver," whereby corporations would be forcedto waive their double jeopardy claims if follow-up criminal prosecution ensued, in return forthe Civil Division's agreement not tocharacterize the company's payments beingsought. Indeed, that very scenario waspresented before the Court nine years later.

The Supreme Court was faced with a casewhere the chairman of two national banks wasadministratively sanctioned by a governmentagency for violating banking laws and fined$16,500. Three years later, he was indicted andconvicted. On appeal, he argued that theDouble Jeopardy Clause prohibited his criminalprosecution. In Hudson v. United States, 522U.S. 93 (1997), the Supreme Court reversed itsholding in Halper, ruling that the DoubleJeopardy Clause "protects only against theimposition of multiple criminal punishmentsfor the same offense." Id. at 99. If Congressintended penalties to be civil in nature, thatcharacterization would usually control, unlessthe "clearest proof" shows otherwise.

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However, several Justices, includingJustices Breyer and Souter, who joined in theopinion, did not close the door to challengingsuccessive punishments, regardless of whetherthey were civil sanctions following criminalprosecution. In his concurring opinion, JusticeBreyer suggested that a closer examination ofthe civil remedy may indeed rise to the level ofbeing punitive. Id. at 113-14. Even JusticeRehnquist, who authored the opinion for theCourt, noted that civil sanctions that are"irrational" or excessive can be challengedunder the Due Process, Equal Protection, or theExcessive Fines Clauses. Id. at 103. Indeed, ayear later, the Supreme Court ruled that a civilfine was so excessive, even though authorizedunder the particular forfeiture statute, that itviolated the Excessive Fines Clause. UnitedStates v. Bajakajian, 524 U.S. 321 (1998).

EPA's Response to Hudson. Followingthe pro-government Hudson decision in 1997,DOJ's Environment and Natural ResourceDivision (ENRD) revisited and revised its 1987parallel prosecution policy with two newprocedures. In 1999, EPA issued Directive 99-20, Global Settlement Policy (1999) andDirective 99-21, Integrated Enforcement Policy(1999). The Integrated Enforcement Policyexplicitly allows for joint criminal and civilinvestigations and the sharing of jointlydeveloped information until the grand jury hasbeen convened. Even though the policycautions against using administrative or civildiscovery as a pretext for later criminalcharges, EPA began to use parallel proceedingseven more aggressively.

In addition, the Global Settlement Policyrequires that criminal prosecutors handlecriminal pleas, while civil attorneys handle anycivil settlement pursuant to their respectivecriteria for resolving their cases against a singledefendant for the same conduct. Civil relief orsettlement may not be traded off for a reduction

in the criminal penalty. On the other hand,civilly imposed cleanup orders can be made apart of a supplemental sentence imposed by thecourt in the parallel or subsequent criminalproceeding. Indeed, as discussed in ChapterTwo, these court-mandated SEPs can be quiteexpensive, amounting to $135 million in FY2007.

In July 2005, EPA announced that one ofits priorities was to integrate EPA's civil andcriminal enforcement programs, includingphysically co-locating the civil and criminaloffices around the country. This initiative wasintended to facilitate the sharing of informationbetween civil and criminal investigators. Inpractice, it has only increased the risk ofabusive parallel civil and criminal enforcementactions. EPA has cautioned its investigators,however, that once criminal charges are filed,the civil enforcement agents should stopsharing information with the criminalinvestigators.

Courts Rebuke DOJ for Abusive ParallelProsecutions. Courts are beginning to addressthose situations where federal prosecutors useregulatory agencies, such as the Securities andExchange Commission (SEC), as a stalkinghorse to develop information for their criminalinvestigation and to circumvent the strictures ofcriminal discovery. As discussed, in UnitedStates v. Kordel, 397 U.S. 1 (1970), the Courtwarned against the use of evidence obtainedfrom civil proceedings if those proceedingswere brought to obtain evidence for a criminalinvestigation. In United States v. Scrushy, 366F. Supp. 2d 1134 (N.D. Ala. 2005), the districtcourt suppressed the testimony given by thedefendant in an SEC deposition because thesupposedly parallel investigations of the U.S.Attorney’s Office and the SEC were, in fact, asingle investigation. Id. at 1139.

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In another case, the SEC investigatorsessentially were being used by criminalprosecutors to develop their criminal case underthe pretext that the matter was being handledonly in civil proceedings. In United States v.Stringer, 408 F. Supp. 2d 1083 (D. Or. 2006),criminal prosecutors attempted to gain astrategic advantage by concealing a criminalinvestigation behind the guise of an ongoingcivil investigation . Specifically, theprosecutors sought to leverage the difficultchoice facing defendants: namely, either asserttheir Fifth Amendment privilege against self-incrimination or protect their professionalstanding and financial interests in the civil orregulatory proceedings. While the SECattorneys knew the defendants were targets ofa criminal investigation, they did not reveal thatcritical information, when specifically asked bythe defendants. Thus, the defendantscooperated with the SEC investigators andwaived their privilege against self-incrimination. However, the district court inStringer sharply rebuked the prosecutors fortheir deceiving the defendants into waivingtheir Fifth Amendment rights, and dismissedthe indictments because of the governmentmisconduct. Id. at 1088. The JusticeDepartment appealed the ruling to the U.S.Court of Appeals for the Ninth Circuit wherethe case was pending as of March 2008.

Not only does the SEC engage inimpermissible parallel prosecutions, the agencyblocks defendants from getting access todiscovery in the civil proceedings once thecriminal charges are filed. One court has aptlycalled this practice “gamesmanship,” and othercourts have rightfully decried and rejected thismanipulative practice in similarly forcefulterms. See, e.g., SEC v. Sandifur, No. C05-1631, 2006 WL 3692611 (W.D. Wash. Dec. 11,2006); SEC v. Kornman, No. 3:04-CV-1803-L,2006 WL 1506954 (N.D. Tex. May 31, 2006);SEC v. Saad, 229 F.R.D. 90 (S.D.N.Y. 2005);

United States v. Mahaffy, 446 F. Supp. 2d 115(E.D.N.Y. 2006). In all of these cases, thegovernment’s playbook is strikingly similar;without informing the target, the governmentuses a civil investigation to develop evidencesupporting criminal charges, brings civil andcriminal charges simultaneously, and thenmoves to stay the civil proceedings in favor ofthe criminal proceeding, thus ensuring that adefendant will “barely receive any discovery atall.” Saad, 229 F.R.D. at 91.

United States v. Cassese. Anotheroutrageous case of parallel civil and criminalproceedings by SEC and DOJ involved theprosecution of John J. Cassese, founder andCEO of Computer Horizons Corporation, aleading information technology servicescompany. In 1999, Cassese was in mergernegotiations with Compuware. Subsequently,the CEO of Compuware called Cassese andsaid his company would not be merging withComputer Horizons, but was going to mergewith Data Processing Resources Corporation(DPRC), a company of similar size asComputer Horizons. The next day, Cassese,who had previously owned DPRC stock,purchased 10,000 shares of DPRC. It is lawfulto purchase such stock on non-publicinformation so long as the merger is not atender offer and the purchaser has no fiduciaryduties to the company whose stock is beingpurchased.

Two days later, Compuware announcedthat its acquisition of DPRC would be by tenderoffer. When Cassese's broker called him withthat information, Cassese was surprised andtold him to cancel the trades, but they could notbe undone. Cassese made $150,000 in profits.In 2002, the SEC brought civil charges againstCassese for unlawful insider trading which doesnot require a showing of intent. Cassese settledpromptly with the SEC and paid penalties morethan double his profits, approximately

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$320,000. Cassese never tried to hideanything; in fact, he attempted to correct thesituation. Nevertheless, in March 2003, theU.S. Attorney for the Southern District of NewYork, a member of the Corporate Fraud TaskForce, indicted Cassese on two felony chargesfor the 1999 trades, which carried penalties ofstiff fines and up to 10 years in prison for eachcount. The judge threw out one of the chargesof insider trading since Cassese was neither aninsider nor misappropriated information inviolation of a fiduciary duty to Compuwaresince he had no such duty. United States v.Cassese, 273 F. Supp. 2d 481, 485-88(S.D.N.Y. 2003). Indeed, the SEC did not evencharge Cassese with that violation in its civilproceeding.

The remaining charge was for violation ofa different SEC insider trading regulation thatrequired the SEC to show that Cassese had thenecessary criminal intent to violate the law,specifically, that he knew that the merger wasgoing to be by a tender offer rather than by acash merger. The jury convicted Cassese onthis count, but the district judge set aside theverdict because the evidence was insufficient toprove the requisite willful or specific intent byCassese to commit the crime. Cassese II, 290F. Supp. 2d at 445. The government appealedthe dismissal, but the Second Circuit affirmed,taking the government to task: "Since fewevents in the life of an individual assume theimportance of a criminal conviction, we takethe `beyond a reasonable doubt’ requirementwith utmost seriousness. Here, we find that theGovernment's evidence failed to reach thatthreshold." United States v. Cassese, 428 F.3d92 (2d Cir. 2005).

In a more recent case, a federal judgedismissed an indictment charging immigrationfraud against an anti-Castro Cuban politicalfigure seeking naturalization after withdrawinghis political asylum application. In United

States v. Carriles, 486 F. Supp. 2d 599 (W.D.Tex. 2007), the judge held that "the evidence isoverwhelming that the Government improperlymanipulated" the administrative and civilinvestigation process by misrepresenting thetrue purpose of its investigation and interviewof the applicant; namely, that the investigationwas a pretext to obtain incriminating evidencefor a criminal prosecution. The governmentappealed the Carriles case to the Fifth Circuiton June 5, 2007, where it was pending as ofMarch 1, 2008.

Conclusion. The government's use of civilinvestigative and enforcement proceedings as apretext to obtain evidence for subsequentcriminal cases is a troubling trend, whichappears to be on the rise. It is the responsibilityof counsel, the courts, and DOJ to monitor thispractice vigilantly, as to ensure that theconstitutional rights of both corporations andindividuals are not violated.

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RECOMMENDATIONS

1. Agency civil enforcement attorneys should be forthright with investigative targets aboutwhether the attorneys are, in fact, sharing information with prosecutors, whether suchinformation-sharing has been authorized, and whether the attorneys are aware of anypending criminal investigations before conducting discovery and attempting to seek"voluntary" waivers of their constitutional rights.

2. DOJ should decline to initiate parallel criminal proceedings against corporations andtheir employees where administrative and civil options can remedy the violation, andwhere the civil penalties alone can serve as an effective punishment and deterrent.

3. If criminal enforcement proceedings have been initiated while civil enforcementproceedings are underway, the defendant should be able to obtain discovery from thecivil action or, at his option, have those proceedings stayed until the criminalproceedings have been completed.

4. Defense counsel suspecting grand jury abuse by the prosecutor should file a motionwith the court requesting direct supervision of the grand jury.

5. Any penalties, fines, or injunctive relief imposed administratively or civilly should bepermitted as an offset for any criminal penalties that a court may impose if criminalprosecution ensues and results in a conviction.

6. Courts should carefully scrutinize claims by defendants that Government attorneysengaged in deceit, trickery, or fraud to gain evidence for criminal prosecutions.

7. Counsel should heed Justice Breyer's concurring opinion in Hudson and scrutinize civilfines to see whether they are excessive under the Eighth Amendment and whether otherconstitutional protections have been violated.

8. SEC Form 1662, which is given to witnesses in civil investigations prior to questioningby SEC attorneys, should be revised to make the waiver of rights notification moreprominent and more informative, preferably at the top of page one and in bold print. Signatures by the witnesses/targets should be required to further demonstrate a knowingand voluntary waiver. EPA and other regulatory agencies should also providewitnesses or targets with written notification of their rights to prevent inadvertentwaiver of important constitutional rights, including the right to counsel and the right notto make self-incriminating statements.

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REFERENCE MATERIALS

Note: A listing of WLF publications relevant to this chapter can be found in the Appendix.

Lee G. Dunst, The Future of Parallel Criminal-Civil Investigations: Business as Usual orIncreased Judicial Oversight, in BNA WHITE COLLAR CRIM. REP. (Mar. 17, 2006).

Ralph C. Ferrara & David A. Garcia, Meeting in Dark Corners and Strange Places: SchemingBetween the SEC and the Department of Justice, in BNA SEC. REG. & L. REP. 1329 (Vol. 28,2006).

Mark D. Hunter, SEC/DOJ Parallel Proceedings: Contemplating the Propriety of RecentJudicial Trends, 68 MO. L. REV. 149 (2003).

Robert G. Morvillo & Robert J. Anello, Crafting a Defense in the Face of Parallel Proceedings,230 N.Y.L.J. 3 (Aug. 5, 2003).

DANIEL RIESEL, ENVIRONMENTAL ENFORCEMENT: CIVIL AND CRIMINAL (Law Journal Press2007).

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TIMELINE: PARALLEL CIVIL AND CRIMINAL PROSECUTIONS

1970: United States v. Kordel, 397 U.S. 1 (1970) (evidence obtained from a civilinvestigation can generally be used later in a criminal investigation withoutviolating the self-incrimination or due process clauses).

1987: DOJ's Land and Nat. Resources Division (ENRD) issues Guidelines for Civiland Criminal Parallel Proceedings. Directive No. 5-87 emphasizes bringing andcompleting criminal proceedings first to facilitate finding liability later in civilproceedings.

1989: United States v. Halper, 490 U.S. 435 (1989). Supreme Court holds that theDouble Jeopardy Clause could prevent the imposition of civil penaltiesfollowing a criminal prosecution if the primary purpose of the civil sanctionswere to punish or deter the conduct in question.

1997: Hudson v. United States, 522 U.S. 93 (1997). Court reverses Halper and holdsthat civil or administrative penalties do not bar subsequent criminal prosecutionsunder the Double Jeopardy Clause, but suggests that other constitutionalprotections such as Due Process could protect against abusive parallelprosecutions.

1999: DOJ's ENRD revises 1987 policy with two additions: (1) Directive 99-20,Global Settlement Policy requires criminal and civil prosecutors with authority tosettle separate proceedings relating to same conduct but precludes civil penaltiesto offset criminal sanctions; and (2) Directive 99-21, Integrated EnforcementPolicy provides for joint civil and criminal investigations which allow sharing ofjointly developed information until the grand jury convenes.

July 2005: EPA begins to co-locate civil and criminal offices to facilitate sharing ofinformation in joint and parallel investigations.

2005-2007: Selected court decisions sanctioning DOJ for abusive parallel civil and criminalprosecutions:

United States v. Scrushy, 366 F. Supp. 2d 1134 (N.D. Ala. 2005).United States v. Stringer, 408 F. Supp. 2d 1083 (D. Or. 2006).SEC v. Sandifur, 2006 WL 3692611 (W.D. Wash. Dec. 11, 2006).United States v. Carriles, 486 F. Supp. 2d 599 (W.D. Tex. 2007).

Chapter Five

Attorney-Client and Work Product Privileges

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"What is astonishing is that the attorney-client privilege, one of thefoundational rights on which rests Anglo-American legal culture . . .should now be under siege. The two federal agencies that have beenmost vigorous in seeking waiver of the attorney-client privilege havebeen the Department of Justice and — unfortunately, I must say — theSecurities and Exchange Commission."

Paul S. AtkinsSEC Commissioner January 18, 2008

Chapter Five

ATTORNEY-CLIENT AND WORK PRODUCT PRIVILEGES

Background. The attorney-clientprivilege, the oldest evidentiary

privilege with historical common law roots inEngland from the 1500s, is designed to protectthe disclosure of confidential communicationsbetween attorney and client. The privilege waso r ig ina l ly l im i t e d t o c o n f i d e n t i a lcommunications between an attorney andindividuals, but has now been expanded toinclude communications between corporationsand their attorneys. See United States v.Louisville & Nashville R.R., 236 U.S. 318, 336(1915).

Extending this privilege to corporationswas particularly important inasmuch as theSupreme Court had ruled just a few yearsbefore Louisville that corporations have noFifth Amendment right against self-incrimination. Hale v. Henkel, 201 U.S. 43, 86(1906). Without this constitutional protection,the attorney-client privilege is the onlyprotection that corporations can invoke toprotect certain forms of confidentialcommunication within the corporate structure.

Unfortunately, as SEC Commissioner Paul S.Atkins has noted, this privilege is now undersiege by federal prosecutors and governmentagencies.

The attorney-client privilege serves avaluable societal function. As the SupremeCourt recognized, its purpose is to foster "fulland frank communication between attorneysand their clients and thereby promote thebroader public interests in the observance oflaw and administration of justice. The privilegerecognizes that sound legal advice . . . dependsupon the lawyer's being fully informed by theclient." Upjohn Co. v. United States, 449 U.S.383, 389 (1981). In Upjohn, the SupremeCourt broadened the scope of the privilegefrom communications with the so-called"control group" or higher management, toencompass communications between low-levelemployees and corporate counsel under the so-called "subject matter" test. Under this test,communications from lower level employeeswould be protected if the subject matter wasnecessary for counsel to give legal advice to the

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corporate entity and its officers. Thus, theprivilege enables corporate counsel to betterfacilitate the corporation's compliance with thecurrent myriad of laws and regulations.Conversely, the erosion of the privilege makescorporate counsel's job more difficult.

In addition, the privilege belongs to theclient and can only be waived by the client, notthe attorney. In the corporate setting, thecorporation is the client, not the individualemployee. This relationship may compelcounsel to give an "Upjohn warning" toemployees that their statements can be revealedto the government if the company were towaive the privilege. The privilege can also beexpressly waived if the client voluntarilychooses to do so, even if, as will be discussed,the waiver was effectively compelled. Finally,the attorney-client privilege does not protectcommunications between an attorney and clientfor the purpose of committing a crime or fraud(the "crime-fraud exception").

The work product doctrine is a relatedprivilege that protects the disclosure of workproduct by the client's lawyer to his adversaryregarding litigation that is pending orreasonably anticipated. The attorney-clientprivilege is thus designed to fostercommunication between attorney and client,while the work product privilege is designed toencourage attorneys to engage in carefulpreparation for litigation and to protect theattorney's work product from disclosure. Thework product privilege was also recognized bythe Supreme Court to be available tocorporations. Hickman v. Taylor, 329 U.S. 495,510-11 (1947). However, unlike the attorney-client privilege which is absolute, work productmaterials can be obtained by parties in limitedcircumstances as specified in Rule 26(b)(3) ofthe Federal Rules of Civil Procedure.

As the following discussion of eventsdemonstrates, DOJ and other governmentagencies, particularly the SEC and the U.S.Sentencing Commission, have developedpolicies and practices over recent years thathave seriously eroded these fundamentalprivileges in both the criminal and civilenforcement contexts. In the process,prosecutors have stifled intra-corporatecommunications, thus generating considerablemanagement problems and making compliancewith the law and conducting internalinvestigations more difficult.

Erosion of the Privilege by theDepartment of Justice and SEC. The federalerosion of the corporate attorney-client andwork product privileges by DOJ commenced in1999 with the issuance of the first of fourmemoranda issued by Deputy AttorneysGeneral in the Justice Department. Asdiscussed in Chapter Three, Deputy AttorneyGeneral Eric Holder issued a Memorandum,Federal Prosecution of Corporations, in June1999 listing eight factors for prosecutors toconsider in exercising their discretion as towhether or not to prosecute a corporation. Onefactor that prosecutors could and did considerwas whether the corporation was willing tocooperate with the government's criminalinvestigation. This willingness to cooperate"includ[ed], if necessary, the waiver ofcorporate attorney-client and work productprotection," and whether it was protectingallegedly culpable employees "through theadvancing of attorneys fees." Obtainingwaivers provided a shortcut for prosecutors todevelop their cases.

Regulatory agencies also began to gauge acorporation's level of cooperation in makingenforcement decisions by whether or not theorganization waived its attorney-client andwork product privileges. For example, onOctober 23, 2001, the SEC issued its so-called

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"Seaboard Report" listing 13 criteria that theSEC would use in making enforcementdecisions. One of the criteria encouragescorporations to waive their privileges to gaincooperation credit along with self-policing,self-reporting, and remediation. The SEC latersupplemented its Seaboard Report by issuing aStatement Concerning Financial Penalties inJanuary 2006. That policy also provided thatthe extent of cooperation in an investigationwill be a factor in determining the level of acivil monetary penalty. While the SEC'spenalty policy does not expressly call forwaiver of privilege, the not-so-subtle messageto the corporate community is clear: you will bepunished more severely for not waiving yourprivileges. Other agencies, such as theCommodity Futures Trading Commission(CFTC), EPA, Department of Health andHuman Services (HHS), IRS, FederalCommunicat ions Commission (FCC),Department of Labor (DOL), and FederalEnergy Regulatory Commission (FERC) havefollowed suit with similar waiver policies orpractices. See, e.g., Judson W. Starr & YvetteW. Smallwood, Environmental Crimes inPerspective, THE ENVIRONMENTAL COUNSELOR

(Jan. 15, 2003) (privilege waivers required insome EPA cases to show cooperation).

Moreover, the 2002 passage SOX furtherj e o p a r d i z e d t h e co n f id e n t i a li t y o fcommunications between corporate counseland management. Section 307 requires counselto report material violations of the securitieslaw "up the ladder" in the company, andpermits attorneys to "blow the whistle" to theSEC if necessary to prevent the corporationfrom violating the securities laws. In addition,SEC proposed so-called "noisy withdrawals"regulations that would require or permitcounsel to withdraw from representation of thecompany if the violations continued. Thisproposed rule received strong opposition fromthe bar and it is uncertain what the SEC will do

in this area. Nevertheless, SOX has furthercomplicated the application of state ethicalrules relating to the attorney-client privilegeand the crime-fraud exception.

As noted in Chapter Three, in the wake ofthe Enron and WorldCom scandals and theestablishment of the Corporate Fraud TaskForce, Deputy Attorney General LarryThompson issued Principles of FederalProsecution of Business Organizations onJanuary 20, 2003. The Thompson Memorevised and fortified the 1999 Holder Memo byrequiring "authentic cooperation" fromcorporations in determining whether to filecriminal charges against them, and requiringthat the factors be considered "in every matterinvolving business crimes." The mandatorynature of the Thompson Memo furtheremboldened prosecutors to demand and expectcorporations to waive their privileges and torefrain from paying the attorneys' fees oftargeted employees. Compliance with thesedemands would demonstrate that they werefully cooperative, and hence, deserved lenienttreatment. Even if a corporation waived itsprivilege and acceded to the prosecutor'sdemands, there was no assurance thatcooperation would actually preclude criminalprosecution. Further, proposed deferredprosecution agreements, in lieu of indictments(discussed in Chapter Six), often required thecorporation to waive its privileges as part of thedeal.

According to 2005 and 2006 surveysconducted by the Association of CorporateCounsel (ACC) and the National Association ofCriminal Defense Lawyers (NACDL),approximately 75 percent of respondinglawyers agreed that there is a widespread"culture of waiver." Companies had beenroutinely requested or expected by prosecutorsto waive their attorney-client and work productprivileges in order to demonstrate adequate

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coop e r at i o n w i t h the gov ernme nt ' sinvestigation. Even the author of the HolderMemo, now in private practice, lamented,"Today, it's maddening. . . You'll go into aprosecutor's office . . . and fifteen minutes intoour first meeting they say, `Are you going towaive?'" Peter Lattman, The Holder Memo andI t s P r o g e n y , W S J . c o m . ,ht tp: //blogs.wsj .com/law/2006 /12/13/the-holder-memo/(Dec. 13, 2006).

The "culture of waiver" was furtherexacerbated by the U.S. SentencingCommission's 2004 provision to its corporatecompliance guidelines, as discussed in ChapterSeven. Like the Thompson Memo, theSentencing Guidelines provision measured"cooperation" by the waiver of privileges indetermining the level of punishment acorporation should receive if found guilty of anoffense. To qualify for a reduced sentenceunder the U.S. Sentencing Guidelines Manual§ 8C2.5 (Application Note 12), a corporation'scooperation must be "timely and thorough,"including "disclosure of all pertinentinformation known by the organization," suchas information otherwise protected by theattorney-client and work product privileges.While this policy was only invoked after acompany was convicted, it nonetheless clearlybolstered the "culture of waiver" spawned bythe Thompson Memo.

Adverse Consequences from Waiver.The adverse consequences of forcingcorporations to waive their privileges andterminate payment of attorneys fees toemployees were predictable and palpable:

• Compliance programs and corporategovernance depend upon free and opencommunications between employees,management, and both in-house andoutside corporate counsel. Waivingattorney-client privilege has a "chilling

effect" on communications betweenemployees and corporate counsel and istherefore counter-productive. Itreduces the effectiveness of corporatecompliance programs, including thosemandated by law, such as the reportingrequirements of SOX.

• Corporate counsel are effectivelydeputized as agents for prosecutors andr e g ul a t o r y a g e n c i e s , t h e r e byundermining their professionalobligations to their client, as well astheir perceived role by companyemployees.

• The forced waiver of the attorney-clientprivilege is a Hobson's choice foremployees when corporate counselrequest that they cooperate in aninternal investigation. If they refuse,they can be disciplined or fired by theiremployer; if they cooperate, theyeffectively surrender their FifthAmendment rights by risking thedisclosure of their communications bythe company to the government. Theyare then vulnerable to ruinousprosecution, particularly when thecompany is forced to stop payingattorneys' fees for their defense.Employees lose a shared sense of dutyand loyalty to the corporation andfoster a defensive "every man forhimself" workplace mentality thatharms productivity.

• There is an increased reluctance amongqualified candidates to assume boardpositions at public companies, therebyreducing available talent to overseecompany operations and compliance tothe detriment of shareholders.

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• Plaintiffs' attorneys are able to use thedisclosed information as a "roadmap"for third-party follow-on civil lawsuits.

• Due to conflicting judicial authority asto the validity of limited waivers,businesses are reluctant to cooperatev o l u nt a r i l y w i t h g o v e r n m e n tinvestigations.

As the Supreme Court noted, "if thepurpose of the attorney-client privilege is to beserved, the attorney and the client must be ableto predict with some degree of certaintywhether particular discussions will beprotected. An uncertain privilege . . . is littlebetter than no privilege at all." Upjohn, 449U.S. at 393. The mere uncertainty as towhether a corporation will be forced to waiveits attorney-client and work-product privilegesgreatly diminishes their value.

A Crescendo of Criticism. Throughout2005 and 2006, a growing chorus of criticismcame from a broad spectrum within the legaland policy-making community. The Coalitionto Preserve the Attorney-Client Privilege,consisting of members of the corporatecommunity, the defense bar, business and tradegroups, and organizations, including the ACC,NACDL, the U.S. Chamber of Commerce, theWashington Legal Foundation, Business CivilLiberties, Inc. and the ACLU, began aconcerted effort to reverse DOJ's waiver policyand practice. Joining this effort was the ABAand its Task Force on the Attorney-ClientPrivilege, which strongly campaigned insupport of preserving the privilege. On August9, 2005, the ABA House of Delegatesunanimously adopted Resolution 111 opposing"the routine practice by government officials ofseeking to obtain waiver of the attorney-clientprivilege or work product doctrine."

In the interim, Acting Deputy AttorneyGeneral Robert McCallum issued amemorandum on October 21, 2005, instructingall U.S. Attorneys and Department Heads toadopt a written waiver review process for theirdistrict or component. Robert McCallum,Acting Deputy Attorney General, Waiver ofCorporate Attorney-Client and Work ProductProtection (Oct. 21 2005). This tepid responseto the criticism only made matters worse. Withthis directive, U.S. Attorneys were now free todevelop policies that varied from district todistrict or component to component, therebyreducing certainty and predictability of thewaiver process. The McCallum Memo onlyfurther delayed the much needed substantiverevision to the Thompson Memo's waiverpolicy.

Bipartisan support also began to grow inCongress to examine and halt DOJ's witheringassault on the attorney-client and work productprivileges. On March 7, 2006, former AttorneyGeneral Dick Thornburgh testified before theHouse Judiciary Subcommittee on Crime,Terrorism, and Homeland Security —apparently the first ever congressional hearingon the subject of the attorney-client privilege— strongly opposing waiver requests byprosecutors and agency attorneys. In responseto the escalating criticism of the "culture ofwaiver," former top DOJ officials from bothparties, led by the former Attorney General,submitted statements to the Justice Department,the Sentencing Commission, and Congress, inwhich they vigorously opposed the dangerouserosion of these essential privileges.

In the meantime, the SentencingCommission on April 5, 2006 unanimouslyreversed its 2004 policy, similar to theThompson Memo, that waiver could beconsidered in considering the sufficiency ofcooperation with prosecutors, after receivingstrong objections to the policy from the legal

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and business community. While this is awelcomed revis ion, the Sentencin gCommission policy is not triggered until afterthere is a conviction; hence, DOJ's waiverpolicy during the pre-charging stage is morerelevant to businesses under investigation.

Even the courts began to weigh-in againstprosecutors for forcing companies to curtailpaying defense attorneys fees to targetedemployees. As discussed in greater detail inChapter Six, in August 2005, DOJ and KPMG,a major accounting firm, entered into a deferredprosecution agreement (DPA), which includeda waiver provision. While there was no expressterm in the DPA that the company could notpay the attorneys' fees of targeted partners, theprosecutor grilled the company before signingthe agreement about whether it intended toadvance defense fees as its policy and practicehad previously allowed. KPMG quickly got themessage: in order to be spared criminalprosecution and the same fate of ArthurAndersen, it had better stop supporting itsemployees.

In his landmark follow-up opinion, JudgeKaplan dismissed the indictments against 13KPMG employees, ruling that DOJ's heavy-handed pressure on KPMG to deny theadvancement for fees violated the employees'Sixth Amendment right to counsel and FifthAmendment right to due process and a fair trial.United States v. Stein (Stein II), 495 F. Supp. 2d390 (S.D.N.Y. 2007). DOJ has appealed JudgeKaplan's decision to the U.S. Court of Appealsfor the Second Circuit, which will likely hearthe case in mid-2008.

The McNulty Memorandum. Reacting tothe widespread criticism from Congress, thecourts, and the legal community, then-DeputyAttorney General Paul McNulty issued amemorandum on December 12, 2006 replacingthe Thompson Memo. The McNulty Memo

was intended to allay concerns about compelledwaivers and forcing companies not to pay theiremployees' attorneys fees. Henceforth, lineprosecutors were required to obtain priorwritten approval from their respective localU.S. Attorney, in consultation with theAssistant Attorney General at Main Justice,before requesting disclosure of purely factualinformation (so-called Category I information).Prior written approval from the DeputyAttorney General was required to request andobtain the disclosure of attorney-clientmaterials (so-called Category II information).However, not only is the line between CategoryI and II information vague, but also companiesare still encouraged to "voluntarily" waive theprivilege in order to be viewed favorably whenthe charging decision is being made. Inaddition, the McNulty Memo states that"prosecutors generally should not take intoaccount whether a corporation is advancingattorney's fees to employees under investigationor indictment."

In particular, McNulty's public statementthat companies will be rewarded for waivingthe privilege undercuts the Memo's assertionthat companies will not be punished for notwaiving the privilege. While the McNultyMemo was considered by some to be a smallstep in the right direction, it was insufficient todispel the notion that prosecutors could andwould continue to force waivers without havingto expressly request them. The messageremained the same: waive the privilege or elseface ruinous criminal prosecution. Employeeswould continue to view corporate counsel as defacto government agents, thereby chillingcommunications the attorney-client privilegewas designed to protect. As one practitionerconcluded, "the McNulty Memorandum failsmiserably and, in many respects, exacerbatesthe deterioration of the corporate attorney-clientprivilege and the interest in compliance that theprivilege seeks to further." Michael N. Levy,

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Selective Waiver, McNulty, and the StealthAttack on Privilege (McKee Nelson LLP 2007).Moreover, the McNulty Memo had no effect onthe myriad of agencies that continued to coerceprivilege waivers. Furthermore, DOJ continuedto discourage joint defense agreements betweenthe corporation and targeted employees,including the sharing of corporate documentsfor the employees' defense.

Crime-Fraud Exception and SelectiveWaiver. In addition to the assault on theattorney-client privilege by DOJ and regulatoryagencies, there have been several judicialdevelopments concerning the applicability ofthe privilege that have also contributed to itserosion. One issue is the scope of the crime-fraud exception to the privilege, and the secondissue involves limited or selective waiver.

The crime-fraud exception to the attorney-client privilege provides that communicationsbetween the client and the attorney whichinvolve the planning or commission of a crimeor fraud are not protected by the privilege. Forobvious reasons, the benefit of confidentialcommunications is outweighed by the cost tosociety of perpetrating crimes or frauds. Yet,judicial rulings have unreasonably broadenedthis exception, and thus, limited theapplicability of the privilege. In hisMonograph on the subject, former AttorneyGeneral Thornburgh traces the judicialexpansion of the crime-fraud exception.Attorney-Client Privilege and "Crime-Fraud"Exception: The Erosion of Business andPrivacy, WLF MONOGRAPH (Sept. 1999). Forexample, in Duttle v. Bandler & Kass, 127F.R.D. 46 (S.D.N.Y. 1989), the court held thateven when the corporation innocently acted asintermediary for others who were engaging infraud, the crime-fraud exception would apply,and thus the attorney-client privilege was lost.Moreover, since minor regulatory offenses canbe prosecuted by aggressive prosecutors as a

"crime," communications between attorney andclient on legal advice regarding simple orminor regulatory matters may void the privilegewith unduly expansive interpretation of the"crime-fraud exception."

Courts have also weighed in on the issueof limited or selective waivers. In DiversifiedIndustries, Inc. v. Meredith, 572 F.2d 596 (8thCir. 1977), the court created the concept ofselective waiver. In this case, the courtproperly held that a corporate document turnedover to the SEC in a nonpublic investigationdid not waive the attorney-client privilege withrespect to third parties, such as plaintiffs'attorneys seeking evidence for class actionlawsuits. "To hold otherwise may have theeffect of thwarting the developing procedure ofcorporations to employ independent outsidecounsel to investigate and advise them in orderto protect stockholders, potential stockholdersand customers." However, most courts haveruled the other way. For example, in In re:Kidder Peabody Securities Litigation, 168F.R.D. 459 (S.D.N.Y. 1996), the court ruledthat the attorney-client and work productprivileges were waived for documents in acorporate internal report given to the SEC, evenif there was no intent to waive the informationwith respect to third parties. The most recentcircuit joining the chorus against selectivewaiver was the Tenth Circuit in In re: QwestCommunications Int'l Inc. Securities Litigation,450 F.3d 1179 (10th Cir. 2006). In Qwest, thecourt held that internal corporate documentsgiven to DOJ and SEC were not protected, eventhough the company did not intend to waive theprivilege with respect to third parties basedupon the agreement by both DOJ and SEC tokeep the documents confidential with respect tothird parties.

Congressional and Agency Responses. Senator Arlen Specter, with bipartisan support,proposed the Attorney-Client Privilege

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Protection Act (S. 30) on December 7, 2006,just before the release of the McNulty Memo.The bill would expressly bar governmentattorneys, prosecutors and agency attorneysalike, from seeking waiver of the attorney-client privilege. Senator Specter reintroducedthe legislation in the new congressional sessionin January 2007 (S. 186). Similar legislationwas introduced in the House by Rep. RobertScott (H.R. 3013) on July 12, 2007.

Throughout 2007, there was a groundswellof bipartisan support for the legislation. Forexample, on July 30, 2007, former DOJofficials from both Republican and DemocratAdministrations, including Dick Thornburgh,Edwin Meese III, Stuart M. Gerson, Carol E.Dinkins, Jamie Gorelick, Walter E. Dellinger,III, Theodore B. Olson, Kenneth W. Starr, andSeth P. Waxman, signed a letter supporting thelegislation. Former Delaware Chief Justice E.Norman Veasey, now a senior partner at Weil,Gothshal & Manges, issued a report andtestified in favor of the legislation before theSenate Judiciary Committee on September 19,2007. Judge Veasey's testimony recountedexamples of abusive, if not contemptuouspractices of federal prosecutors both pre- andpost-McNulty Memo to coerce privilegewaivers. In one case, defense counselrecounted that his objection to a waiver requestby a prosecutor who failed to follow theMcNulty Memo's procedures was met with aprofane scolding, "I don't give a flying ----about the [McNulty] policy." On November13, 2007, the House approved the Attorney-Client Privilege Protection Act and sent it to theSenate, which has not yet acted on SenatorSpecter's bill.

Selective Waiver. In May 2006, theAdvisory Committee on Evidence Rules of theU.S. Judicial Conference proposed amendmentsto Federal Rule of Evidence 502. The proposedrule would limit waiver as the result of

inadvertent disclosure but expand an intentionalwaiver of privileged documents to other non-disclosed documents with the same subjectmatter in limited circumstances. Originally, thecommittee considered a provision to codifyselective waiver, i.e., releasing privilegedinformation to government agencies would notwaive the privilege as to third parties. Whileselective waiver at first blush appears to bereasonable, many voices in the corporatecommunity, such as the Association ofCorporate Counsel, were wary of this provisionsupported by DOJ. Selective waiver wouldsimply give the government an added weaponto force the corporation to waive its privilegesby assuring it that the information would not bereleased to third parties. In response to suchcriticism, the committee did not recommend aselective waiver provision to Congress.

On December 11, 2007, Senators PatrickLeahy and Arlen Specter introduced S. 2450,which would add a new Rule 502 regardingwaiver of attorney-client and work productprivileges. Notably, the legislation does notcontain a selective waiver provision; however,it does permit a federal court to order that anywaiver be limited to the litigation at hand, andnot waived with respect to other or futurelitigation. On the other hand, the legislationwould extend an intentional waiver ofdocuments to a federal agency to certainundisclosed documents as well. The waiverwould cover documents that concern the samesubject matter of those already disclosed, butonly if they "ought in fairness . . . be consideredtogether" with the disclosed documents. Moreimportantly, the legislation would protect theinadvertent disclosure of privileged documentsso long as the holder of the privilege promptlytakes steps to prevent and rectify the error.

Conclusion. The tide is turning againstcoercive DOJ and agency waiver policies, dueto the efforts of outspoken defenders of the

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privileges, including judges like U.S. DistrictCourt Judge Kaplan. However, more needs tobe done. While the CFTC eliminated thewaiver of privileges when assessingcooperation in March 2007, the SEC has yet tochange its policy as SEC Commissioner PaulAtkins has publicly acknowledged. Otherenforcement agencies, such as the EPA, alsocontinue to seek privilege waivers. Thepassage of the Attorney-Client PrivilegeProtection Act by the Senate to match theHouse's legislation will go a long way to stopthe erosion of the privileges.

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RECOMMENDATIONS

1. Privilege waivers are not necessary for prosecutors and agencies to enforce the law.Accordingly, DOJ should modify the McNulty Memo and regulatory agencies shouldsimilarly revise their own waiver policies (such as the SEC's Seaboard Report), to makeclear that (1) requests for waiver of attorney-client and work product information willnever be made, and (2) that the refusal of a corporation to voluntarily waive its privilegewould not be used against the corporation in determining whether to pursue criminal orcivil action.

2. Corporate counsel should educate their client and company employees about the nature andlimited scope of the attorney-client and work product privileges, and oppose governmentattempts to have the corporation waive the privileges.

33. At a minimum, DOJ prosecutors should regard a corporation's voluntary disclosure of

purely factual information, as opposed to opinion work product and other communications,as a sufficient demonstration of corporate cooperation and not deem such limiteddisclosures as constituting a waiver of attorney-client or work product privileges.

4. If a corporation decides to waive its privileges, it should expressly condition or limit theiravailability to third parties, such as plaintiffs' attorneys in follow-on civil litigation. Courtsshould enforce those conditions and provide clarity concerning the validity of selectivewaiver agreements.

5. The Attorney-Client Privilege Protection Act, if enacted into law, will stem the erosion ofthe privilege if DOJ and regulatory agencies, such as the SEC, refuse to voluntarily curbtheir current policies that encourage waivers.

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REFERENCE MATERIALS

Note: A listing of WLF publications relevant to this chapter can be found in the Appendix.

American College of Trial Lawyers, The Erosion of the Attorney-Client Privilege and Work ProductDoctrine in Federal Criminal Investigations, 41 DUQ. L. REV. 307 (2003).

Lance Cole, Revoking Our Privileges: Federal Law Enforcement's Multi-Front Assault on theAttorney-Client Privilege (and Why It Is Misguided), 48 VILL. L. REV. 469 (2003).

Susan Hackett, Corporate Confidentiality Is Only for the "Privileged" Few, 9 WALL ST. LAWYER

No. 2 (July 2005).

John Hasnas, Ethics and the Problem of White Collar Crime, 54 AM. U.L. REV. 579 (2005).

Oren M. Henry, Privilege? What Privilege? Culture of Waiver in the Corporate World, 20 GEO.J. LEGAL ETHICS 679 (2007).

Michael N. Levy, Selective Waiver, McNulty, and the Stealth Attack on Privilege (McKee NelsonLLP 2007).

William R. McLucas, et al., The Decline of the Attorney-Client Privilege in the Corporate Setting, 96 J. OF CRIM. LAW & CRIMINOLOGY 621 (2006).

Earl J. Silbert & Demme Doefekias Joannou, The Impact of Corporate Privilege Waivers on theAdversarial System, 43 AM. CRIM. L. REV. 1225 (2006).

Judson W. Starr & Yvette W. Smallwood, Environmental Crimes in Perspective, THE ENVTL.COUNSELOR (Jan. 15, 2003).

George J. Terwilliger III & Darryl S. Lew, Privilege in Peril: Corporate Cooperation in the NewEra of Government Investigations, 7 ENGAGE: THE J. OF THE FEDERALIST SOC'Y PRACTICE GROUPS

25 (2006).

Brian Walsh, What We Have Here Is Failure to Cooperate: The Thompson Memorandum andFederal Prosecution of White-Collar Crime, HERITAGE FOUNDATION LEGAL MEMORANDUM, No.19 (Nov. 6, 2006).

Websites:

American Bar Association: http://www.abanet.org/buslaw/attorneyclient/

Association of Corporate Counsel: http://www.acc.com/public/article/attyclient/acc-ac-biblio.pdf

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TIMELINE: ATTORNEY-CLIENT AND WORK PRODUCT PRIVILEGES

1906: Hale v. Henkel, 201 U.S. 43 (1906) (corporations have no Fifth Amendmentright against self-incrimination).

1947: Hickman v. Taylor, 329 U.S. 495 (1947) (work-product doctrine extends tocorporations).

1977: Diversified Industries v. Meredith, 572 F.2d 596 (8th Cir.) (Eighth Circuitrecognizes a limited or selective waiver of privileged documents; mostcircuits rule otherwise).

1981: Upjohn v. United States, 449 U.S. 383 (1981) (Supreme Court expandscorporate attorney-client privilege from executives in the "control group"to include communications from lower-level employees).

1989: Duttle v. Bandler & Kass, 127 F.R.D. 46 (S.D.N.Y. 1989) (attorney-clientprivilege lost under the "crime-fraud" exception even when the corporationinnocently acted as intermediary for others engaging in fraud).

1996: In re: Kidder Peabody, 168 F.R.D. 459 (S.D.N.Y. 1996) (privilegeddocuments are waived for communications and information from acorporate internal report given to the SEC, even if no intent to waive forthird parties).

June 16, 1999: Holder Memorandum issued listing waiver of attorney-client and workproduct privileges as one indicator of cooperation that prosecutors couldconsider in making their charging decision.

Oct. 23, 2001: SEC issues "Seaboard Report" which pressures corporations to waiveprivileges to obtain leniency.

Jan. 20, 2003: Thompson Memorandum issued reinforcing waiver of privileges as anindicator of "authentic" cooperation; spawns "culture of waiver."

Nov. 1, 2004: Sentencing Commission adopts waiver of privilege as criteria for assessingcorporation's cooperation.

Mar. 2005: Coalition of business and public interest groups urge SentencingCommission to eliminate waiver as a criteria for cooperation.

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Apr. 2005: American Corporation Counsel (ACC) and National Association ofCriminal Defense Lawyers (NACDL) publish surveys showing widespreadpractice of waiver demands.

Aug. 11, 2005: ABA adopts Resolution 111 opposing government requests for waiver.

Oct. 8, 2005: Acting Deputy AG Robert McCallum instructs all U.S. Attorneys andDepartment Heads to adopt individual written waiver review policies; lacksnationwide uniformity and predictability.

Nov. 15, 2005: Former Attorney General Dick Thornburgh testifies before U.S. SentencingCommission to delete waiver provision from Guidelines.

Mar. 7, 2006: ACC and NACDL releases second survey showing that 75 percent ofcounsel responding confirm government request for waivers are routine.

Mar. 7, 2006: Thornburgh testifies before House Judiciary Subcommittee opposing DOJ'swaiver policies and practices.

Apr. 5, 2006: Sentencing Commission unanimously approves removal of privilege waiverlanguage from guideline commentary. Revised policy becomes effectiveNovember 1, 2006.

2006: In re: Qwest Communications Int'l Inc. Sec. Litig., 450 F.3d 1179 (10th Cir.2006) (Tenth Circuit surveys law on selective waiver and joins most othercircuits rejecting selective waiver first established in 1977 by the EighthCircuit).

May 2006: Advisory Committee on Evidence Rules of the U.S. Judicial Conferenceproposes amendments to Federal Rule of Evidence 502 to protectinadvertent waiver and limited subject matter waiver. Selective waiverprotection not proposed due to objection by business community.

June 2006: United States v. Stein, 435 F. Supp. 2d 330 (S.D.N.Y. 2006) (court rebukesDOJ for pressuring KPMG to cut off defense fees to its employees underinvestigation).

Sept. 5, 2006: Former top DOJ officials urge Attorney General Gonzales to reviseThompson Memo on waiver provision.

Sept. 12, 2006: Senator Specter holds Senate Judiciary Committee hearings on waiverissue.

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Dec. 7, 2006: Senator Specter introduces Attorney-Client Privilege Protection Act of 2006barring all DOJ and agency attorneys from requesting waivers.

Dec. 12, 2006: McNulty Memorandum issued in response to widespread criticism;provides DOJ review process for requests for waiver to limit abuse and barsconsideration of payment of fees to employees in charging decision.However, these changes do not curtail abusive waiver practices.

Jan. 4, 2007: Senator Specter reintroduces Attorney-Client Privilege Protection Act of2007 as S. 186.

Mar. 1, 2007: Commodity Futures Trading Commission (CFTC) issues enforcementadvisory reversing its waiver policy.

July 2007: United States v. Stein (Stein II), 495 F. Supp. 2d 390 (S.D.N.Y. 2007) (courtdismissed indictments against KPMG employees due to DOJ's pressure oncompany to cut off payment of attorneys fees).

July 30, 2007: Bipartisan group of former top DOJ officials urge passage of both S. 186and H.R. 3013 to bar waiver requests.

Sept. 13, 2007: Former Delaware Chief Justice Norman Veasey issues scathing reportdocumenting abusive practices pre- and post-McNulty Memo byprosecutors to force waiver.

Sept. 18, 2007: Senate Judiciary Committee holds hearings on S.186.

Nov. 13, 2007: U.S. House of Representatives approves H.R. 3013.

Dec. 11, 2007: Senators Patrick Leahy and Arlen Specter introduce S. 2450, which wouldadd a new Rule 502 to Fed. Rules of Evidence on waiver of attorney-clientand work product that would protect inadvertent waiver and limit subjectmatter waiver. However, selective waiver protection is excluded from billdue to opposition from business community.

Chapter Six

Deferred Prosecution andNon-Prosecution Agreements

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"[Deferred and non-prosecution] agreements can border on theextortionate because the Justice Department knows it is in a farsuperior bargaining position, and such an imbalance can lead toabuse, and not just in the extravagant amounts of money thecorporations are forced to pay."

Former Attorney General Dick Thornburgh March 17, 2007

Chapter Six

DEFERRED PROSECUTION ANDNON-PROSECUTION AGREEMENTS

Overview. Historically, federalprosecutors have had three basic

options when handling criminal cases. Theycould decline to prosecute their targets, filecharges and extract a plea agreement, orproceed to trial. In recent years, however, amore controversial weapon has been wieldedby prosecutors against the corporatecommunity: pretrial diversion in the form ofdeferred prosecution agreements (DPAs) andnon-prosecution agreements (NPAs).

The authority to enter into theseagreements is found in the Speedy Trial Act of1974, 18 U.S.C. § 3161(h)(2). That provisionprovides that the time limits under the Act aresuspended during "[a]ny period of delay duringwhich prosecution is deferred by the attorneyfor the Government pursuant to writtenagreement with the defendant, with theapproval of the court, for the purpose ofallowing the defendant to demonstrate his goodconduct."

Once sporadically used for individuals inminor criminal matters, pretrial diversion isbeing used more frequently to resolve corporatecriminal cases. These agreements areessentially one-sided arrangements crafted byprosecutors with unchecked power, and"agreed" to by their corporate targets. There isno formal guilty plea or conviction; rather, thecompany usually acknowledges wrongdoingand agrees to cooperate with the government'songoing investigation, pay massive fines orpenalties, reform its business operations, andcomply with other specified and variedconditions, often under the watchful eye of anexpensive "corporate monitor" selected orstrongly recommended by the prosecutor. Inreturn, at the end of a "probationary" periodthat usually lasts from one to three years, thegovernment agrees to drop the charges againstthe company if prosecutors, in their soleunreviewable discretion, believe the companyhas not violated the terms of the agreement.

At the same time, prosecutors have largelyignored pretrial diversion as an option for

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resolving cases against company employees,executives, or other individuals accused ofviolating regulatory offenses. Instead ofdeclining prosecution or referring the case tothe agency for civil or administrative remedies,which should be the preferred outcome,prosecutors generally disregard the option ofpretrial diversion for individuals, file criminalcharges, and effectively extort unfair pleaagreements or convictions that often result inexcessive prison terms under the SentencingGuidelines.

NPAs generally do not require anadmission of guilt from the targeted companybecause the prosecutor does not file criminalcharges. NPAs are often quite informal andusually come in the form of a letter from theU.S. Attorney's Office signed by both parties.On the other hand, the more frequentlyemployed DPAs require a more complexprocedure. Prosecutors file criminal charges(the company having waived its right toindictment by a grand jury), but "defer"prosecuting the case as long as the companycomplies with certain conditions specified inthe DPA. The conditions usually are moredetailed and burdensome than those found inNPAs. Because criminal charges are filed,DPAs read much more like pleadings and aremore formal in nature. For example, the DPAthat the accounting firm KPMG entered into in2005 (discussed below) numbered 28 pages,not including the Statement of Facts (another10 pages), and the criminal information(another 34 pages).

Because of their almost limitless chargingdiscretion, prosecutors are able to exercisepowerful leverage over their corporate targets.To avoid indictment and not risk convictioneither by a jury or plea agreement, companiesseek and prefer pretrial diversion despite itsheavy price. A criminal investigation andindictment alone could have enormous adverse

consequences even if a company wereultimately acquitted at trial. For example,under federal procurement regulations,companies under investigation or indictmentare suspended from applying for or receivinggovernment contracts, subsidies, and assistance— effectively suspending any and all of theirgovernment-related business. Publicly tradedcorporations typically face a sharp drop inshare value and debilitating class actionlawsuits. A conviction could effectively resultin a corporate death sentence, harming innocentemployees, stockholders, and the economy.Accordingly, federal prosecutors can dictateharsh DPA and NPA terms and conditions,even if the underlying case is weak and even ifany individuals charged are acquitted.

Growing Trend of Pretrial Diversion.The first corporate NPA was entered into inMay 1992 with Salomon Brothers, resulting ina civil penalty of $290 million for improperlyauctioning Treasury securities. The first DPAwas made with Armour of America in 1993,which required only a $20,000 civil penalty anda corporate compliance program, but noadmission of criminal or civil liability for anarms export violation. In 1997, DOJestablished general guidelines for U.S.Attorneys to consider in deciding whether touse pretrial diversion, but they were designedmore for individuals than corporations, andallowed for inconsistent application. See U.S.Attorneys' Manual § 9-22.010 (1997).

From 1992 through 2002, there were only11 corporate DPAs and 7 NPAs, totaling 18agreements, or an average of less than 2 peryear. However, after the creation of theCorporate Fraud Task Force in 2002 followingthe Enron scandal, the subsequent indictmentand collapse of Arthur Andersen LLP, and theissuance of the Thompson Memorandum inJanuary 2003, overly aggressive prosecutorsincreasingly turned their sights on companies

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and their executives for criminal prosecution.The number of DPAs and NPAs roseaccordingly. The Thompson Memo's inclusionof alternative resolutions to indictment forcompanies that have cooperated with DOJ as aprosecutorial option may have also spurredmore DPAs and NPAs. During the five-yearperiod from 2003 to 2007, there was a recordnumber of 55 DPAs and 30 NPAs, a total of 85agreements, or an average of 17 per year. Mostof those were entered into over the last twoyears. In 2006, there were 20 agreements,whereas in 2007, there were 38, almost a 100percent increase.

Approximately 60 percent of thoseagreements involved alleged violations offederal health care laws, food and drug laws,and the Foreign Corrupt Practices Act (FCPA).As for environmental offenses, the current headof DOJ's Environmental Crimes Section, StacyMitchell, stated on March 7, 2008 at the ABAAnnual Institute on White Collar Crime thatshe does not believe in DPAs, and that if DOJis not going to prosecute, then the mattershould be referred for civil disposition.However, she also said her section willcontinue to follow the Holder, Thompson, andMcNulty Memos, which contemplate the use ofDPAs. Nevertheless, as these overall numbersreflect, there is a growing trend to use DPAsand NPAs, which will continue so long asaggressive prosecutors target companies andhold them vicariously liable for the wrongdoingof their employees.

While DPAs are generally used by DOJ forresolving criminal cases against corporations,they have been used recently in a few cases tosettle charges against corporate executives afterindictment where the government's case wasparticularly weak. For example, DPAs wereentered into by DOJ with Frank Quattrone ofCredit Suisse in 2006, and with four executivesof Reliant Energy Services, Inc. in 2007.

DOJ's Corporate Leniency Policy: Stolt-Nielsen. In addition to NPAs and DPAs, thereare other pretrial diversion programs that aresometimes used either by the JusticeDepartment or certain government agencies forspecific areas of the law. For example, inAugust 1993 the Antitrust Division of DOJinstituted a Corporate Leniency Policy wherebya corporation is given amnesty if it is the first tocome forward to report illegal anti-competitiveactivity with other companies, cooperates withthe government investigation, and makesrestitution to any injured parties.

However, as one major company quicklydiscovered, immunity from prosecution underthis policy is not guaranteed. In January 2003,Stolt-Nielsen, S.A., a shipping company,entered into a Conditional Leniency Agreement(a form of NPA) with DOJ, reciting that thecompany had terminated its anticompetitiveactivity involving customer allocation as soonas it was discovered and agreeing to cooperatein the government's investigation. On March 2,2004, without any warning, DOJ decided torevoke the agreement because it believed thatStolt-Nielsen continued its anticompetitivepractices after March 2002, the date thecompany represented that it had ceased theactivity.

Stolt-Nielsen sued the government indistrict court to enforce the amnesty agreementand prevailed; unfortunately, the decision wasreversed on appeal. Stolt-Nielsen, S.A. v.United States, 442 F.3d 177 (3d Cir. 2006),cert. denied, 127 S.Ct. 494 (2006). In adubious opinion, the Third Circuit held thatDOJ's claim — that Stolt-Nielsen breached theconditions of the leniency agreement — wasnot subject to preindictment review, absentspecific provision in the agreement to thecontrary. In short, Stolt-Nielsen had to waituntil it was indicted before it could seek anyjudicial review.

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DOJ subsequently indicted Stolt-Nielsen,which, in turn, renewed its challenge. OnNovember 29, 2007, the district court sharplyrebuked DOJ for precipitously revoking theimmunity agreement and dismissed theindictment. The court found that DOJ simplydid not prove that Stolt-Nielsen failed to takeprompt action to terminate its anticompetitiveactivity or that the company breached theagreement in any way. United States v. Stolt-Nielsen, S.A., 524 F. Supp. 2d 609 (E.D. Pa.2007). On December 21, 2007, the JusticeDepartment wisely announced that it would notappeal the dismissal, likely sensing anunfavorable outcome.

Corporate Integrity Agreements (CIAs).In addition to DOJ's Antitrust CorporateLeniency Policy, the Departments of Defense(DOD) in 1986 and Health and HumanServices (HHS) in 1994 developed CorporateIntegrity Agreements (CIAs). Under thesesettlement agreements, which are akin to NPAs,companies doing business with those federalagencies agree to disclose fraud and otherwrongdoing, provide periodic reports over afive-year period, and institute corporatecompliance and reform programs. In return, thecompanies avoid being suspended or debarredfrom future government contracts and likelyavoid being referred to DOJ for criminalprosecution. In some cases, CIAs are used inconjunction with DPAs. The use of CIAs bythe Office of Inspector General of HHS rosesharply from only four CIAs in 1994 to a peakof 233 in 1998, with a current rate ofapproximately 100 per year.

Many of the CIAs provide for set penaltiesif the company fails to comply with its terms,as interpreted by HHS. As in their DPAcounterparts, many of the terms in CIAs areburdensome, intrusive, or of questionablevalidity. For example, many CIAs ban off-label marketing by pharmaceutical and medical

device companies, which infringes on theirFirst Amendment commercial free speechrights and effectively precludes a judicialchallenge to the ban. To underscore the powerof HHS to enforce this questionable ban, asdiscussed in Chapter One, Purdue Frederickand three of its corporate officers were forcedto plead guilty in May 2007 for "unlawful"pharmaceutical marketing practices by lower-level employees, of which they were unaware.In late 2007, HHS began proceedings toexclude these executives from working for thecompany.

Criticism of Abusive DPAs and NPAs.Precisely because a targeted company is facingruinous liability both criminally and civilly,there is a great deal of compulsion andeconomic duress that forces companies toaccede to prosecutors' demands on theconditions they insert into DPAs and NPAs, nomatter how burdensome. Accordingly, somehave argued that doctrines of duress andunconscionability, which courts have used tovoid commercial contracts, may also be used inthe criminal context. See Candace M. Zierdt &Ellen S. Podgor, Corporate DeferredProsecutions Through The Looking Glass ofContract Policing, 96 KY. L.J. 1 (2007).Indeed, in the interest of justice and fairdealing, courts generally impose a higherstandard of good faith and fair dealing when thegovernment, rather than a private party, issetting the conditions.

The terms and conditions of DPAs canvary widely from one case to the next, and fromone prosecutor to another. Some terms, such asthe payment of restitution and an agreement tocomply with the law in the future, are generallynon-controversial, although they can becomeproblematic. For example, a company'sagreement to comply with the law includes allcorporate employees; thus, a minor breach ofany regulatory offense by any employee can

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negate the DPA.

Other terms, drawn from the nine chargingfactors in the Thompson Memo and thosespecified in the U.S. Sentencing GuidelinesCorporate Compliance Program, raise moreserious questions and go well beyond thesanctions that otherwise could be imposed by acourt even if the company were prosecuted andfound guilty of an offense.

For example, forbidding a company frompublicly denying aspects of their "wrongful"conduct raises both First Amendment andbusiness concerns. In a 2006 DPA settlinggovernment charges about the safety conditionsat its nuclear power plant, FirstEnergy NuclearOperation Company paid $28 million in finesand penalties for the alleged violations andagreed not to dispute the company's culpability.However, the company subsequently submitteda $200 million claim to its insurer for thecorrosion damage that led to the charges givingrise to the DPA. Questions were then raised asto whether FirstEnergy's otherwise routinesubmission of an insurance claim violated theDPA, which forbade the company fromdenying the charges that it was responsible forthe plant's damage.

Corporate counsel and commentators haveidentified the following features of DPAs andNPAs to be of particular concern and in need ofbeing addressed:

1. Waiver of Attorney-Client Privilege.

One of the more objectionable conditionsfound in many agreements requires thecorporation to waive attorney-client and workproduct privileges. Encouraged by theThompson Memo, which spawned a "culture ofwaiver" (discussed in greater detail in ChapterFive), prosecutors often require waivers tofacilitate their ongoing investigation of possible

wrongdoing by company employees and tomake it easier to verify the company'scompliance efforts. However, since theissuance of the McNulty Memo in December2006, which was intended to formalize requestsfor waivers by prosecutors, only about 10percent of the DPAs and NPAs have containedexpress waiver requirements. Most of theremainder, though, have a provision that waivercould be required per the McNulty Memoguidelines. See LAWRENCE D. FINDER & RYAN

D. MCCONNELL, AM. BAR ASS'N, WHITE

COLLAR CONFERENCE, ANNUAL CORPORATE

PRE-TRIAL AGREEMENT UPDATE-2007 (March2008).

Forcing companies to waive thesevenerable privileges deters employees fromseeking advice about internal problems theymay have uncovered, from taking correctiveaction, or from implementing complianceprograms already in place, lest thosecommunications are turned over to prosecutorsin some future investigation. No court couldrequire a company to waive its privileges aspart of any sentence if the company were foundguilty of an offense, yet such conditions havebecome standard fare in many DPAs andNPAs.

2. Cooperation with Prosecutors.

Another objectionable feature of manyDPAs is the open-ended and ill-definedrequirement that the corporation fully cooperatewith the prosecution and not protect allegedlyculpable employees. In essence, thecorporation has been effectively deputized toassist prosecutors in carrying out theirinvestigative duties, which unfairly pits theemployer against its employees. This DPAcondition has forced companies to discharge orpunish certain employees; to refrain fromentering into joint defense agreements betweenthe company and targeted employees; and to

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deny or limit the amount of defense feesadvanced for the employees' defense, eventhough payment of fees is either contractuallyrequired or routinely provided for, as a matterof company policy. Such restrictions have beenapplied not just to employees who have beenindicted, but also to those whom thegovernment merely suspects of wrongdoing.

For example, in August 2005, DOJ andKPMG entered into a DPA regarding taxshelter plans that it had offered to its clients butfailed to register with the IRS. The DPArequired that KPMG, among other things, shutdown its tax practice; pay fines, restitution, andpenalties totaling $456 million; and fullycooperate with the investigation. Theprosecutor grilled the company before enteringinto the agreement about whether KPMGintended to advance defense fees of its partners,as its policy and practice had previouslyallowed. Although there was no expressprovision in the DPA precluding the companyfrom paying the attorney's fees of its targetedpartners, KPMG was pressured to curtail thepayment of defense fees to its employees.

As Judge Lewis Kaplan concluded in thecriminal case against the indicted employees,"KPMG refused to pay [the employees' defensefees] because the government had theproverbial gun to its head." United States v.Stein, 435 F. Supp. 2d 330, 336 (S.D.N.Y.2006). The court subsequently dismissed theindictments against 13 of the 16 KPMGemployees, finding that their constitutionalrights to counsel and due process were violatedby the government. 495 F. Supp. 2d 390(S.D.N.Y. 2007). The Stein case is furtherdiscussed in Chapter Five.

3. Lack of Principled, Predictable, andUniform Standards.

DPAs and NPAs have also been roundly

criticized because of the inconsistent andunpredictable manner in which the 93 U.S.Attorney's Offices determine whether to declinea prosecution, enter into a DPA, NPA, or filecharges. There are no governing standards orguidance to U.S. Attorneys on selecting pretrialdiversion. Moreover, as noted, even if pretrialdiversion is chosen, the terms of a DPA or NPAcan vary widely from case to case. Consider,for example, the following two seeminglysimilar cases that resulted in grossly disparateagreements in neighboring U.S. Attorney'sOffices.

The U.S. Attorney's Office in the SouthernDistrict of New York in Manhattan investigatedShell Oil Company for securities fraud relatingto the overstatement of its oil and gas reservesby almost 25 percent. In June 2005, thecompany entered into an NPA where there wereno charges filed, no admission of guilt wasextracted, and the company agreed toreasonable conditions to cooperate withprosecutors and comply with the law.

Across the river, the U.S. Attorney inNewark, New Jersey, Christopher Christie,investigated Bristol-Myers Squibb (BMS) for asimilar securities charge of inflating its salesand earnings. Yet in June 2005, Christierequired BMS to enter into a DPA with a longlist of onerous terms in sharp contrast to theShell Oil case. In addition to "codifying" theinvestigative and remedial steps that BMS hadalready begun to undertake when it discoveredthe problem, BMS was further required toadmit guilt; cooperate fully with thegovernment; accept an independent monitor fortwo years; pay a record $300 million inrestitution (in addition to approximately $539million BMS had already agreed to pay to itsshareholders); appoint a non-executiveChairman of the Board and another Boardmember approved by Christie; and endow achair in business ethics at Seton Hall University

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Law School, the alma mater of the U.S.Attorney. See also 2006 DPA with OperationsManagement International, Inc. ($1 million tohelp endow Chair at U.S. Coast GuardAcademy).

Thus, what appeared to be two similarsecurities violations involving two companiesresulted in grossly disparate dispositions. Asa pair of leading experts in this area havecomplained, "[c]ompanies [and their counsel]should not be required to guess blindly at theresults of their cooperation in government-steered criminal investigations, nor should theirfate rest in the random lot of what prosecutor oroffice they happen to draw." F. Joseph Warin& Andrew S. Boutros, Deferred ProsecutionAgreements: A View From the Trenches and aProposal for Reform," 93 VA. L. REV. IN BRIEF

107, 116 (June 18, 2007). To remedy thisunpredictable practice, Messrs. Warin andBoutros have proposed, along the linessuggested in the Recommendations below, thatDOJ establish clear and consistent guidance forall U.S. Attorneys and Main Justice to follow indeciding whether to use pretrial diversion andwhat the terms should be.

4. Lack of Judicial Review.

As previously discussed, because of theimbalance in the bargaining positions betweenthe government and the corporation,prosecutors are able to use economic duress toexact burdensome and unnecessary conditionsin DPAs. To make matters worse, there is noeffective judicial review to determine whetherthe conditions of a DPA or NPA werereasonable ones, were the result of economicduress, or whether DOJ's decision tounilaterally declare a breach and proceed withprosecution was justified.

Nevertheless, many corporationsreluctantly prefer to operate under this sword of

Damocles rather than risk the adverse collateralconsequences to the company, its innocentemployees, and its shareholders from aprosecution and possible conviction. If DOJeven threatens to revoke the agreement becauseit believes the terms of the DPA are not beingfully complied with, the corporation willaccede to the prosecutor's wishes and conformits response and behavior to forestall arevocation of the agreement, no matter howunreasonable DOJ's position is. For thisreason, there has never been a revocation of aDPA or NPA, except in the Stolt-Nielsen case,because DOJ has the unreviewable power toimpose its interpretation of the terms of theagreement. On the other hand, if DOJ were todecide to terminate a plea agreement for lack ofcompliance, a court would review DOJ's claimto determine if the alleged breach wereintentional or material. Accordingly, the lackof judicial involvement over whether there wasa breach is a serious problem that should beaddressed.

5. Appointment and Powers of Monitors.

Another growing criticism of DPAs is themanner of appointing monitors and the powerthey wield in overseeing the company'scompliance with the terms of the DPA. Themonitors are usually retired federal judges,former prosecutors, or other experiencedpersons that are selected by the U.S. Attorney,but appointed by the court.

Company executives and managers arerequired to file regular reports with the monitoron meeting compliance requirements. Themonitor, however, does not report to the courtbut to the U.S. Attorney instead. Thus, themonitor, who may have little or no experiencewith the company's operation, has assumed, ineffect, certain managerial powers over thecompany. This arrangement can interfere withcorporate governance and can affect both

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management's and shareholders' rights. Forexample, in September 2006, the monitorappointed to oversee the DPA with BMS,former federal judge Frederick B. Lacey, aswell as U.S. Attorney Christopher Christie"recommended" to the Board of Directors tofire its CEO and General Counsel, which it did,even though the recommendation had nothingto do with the original securities violation or afinding that DPA had been violated.

The issue of how monitors are selectedcame to a head in September 2007 whenChristie entered into four related DPAs and oneNPA with five medical supply companiescharged with anti-competitive practices. In ano-bid contract, the U.S. Attorney selected fivemonitors to be paid by each of the companiessubject to the agreements. One of the monitorsselected by Christie to oversee ZimmerHoldings DPA was his former boss, AttorneyGeneral John Ashcroft, and Ashcroft'sconsulting firm. This agreement provided thatZimmer would pay as much as $52 million infees to Ashcroft's firm over a period of just 18months. While Ashcroft may indeed be asuitable monitor, the selection drew widespreadpublicity and raised issues of cronyism becausethere is no judicial oversight in the appointmentprocess.

Congressional Response. On December17, 2007, U.S. Rep. Bill Pascrell, Jr. (D-NJ)proposed a Statement of Principles that DOJshould use in crafting DPAs. This was a directresponse to the lack of standards governing theterms of DPAs and appointment of monitors,especially with respect to the DPAs by the U.S.Attorney for New Jersey with Bristol-MyersSquibb and the five medical supply companies.In brief, Congressman Pascrell's proposalwould require written guidelines for DPAs;restore judicial oversight on the terms of theDPA and selection of the monitor; require theExecutive Office of the United States Attorneys

to screen and select monitors; and provide fulldisclosure of the terms of all DPAs.

On January 22, 2008, U.S. Rep. FrankPallone, Jr. (D-NJ) went a step further andproposed legislation (H.R. 5086) that wouldrequire the Attorney General to issue guidelineswith respect to DPAs, thereby limiting thediscretion of prosecutors. In particular, thefeatures of the bill would require (1) DOJ toconsider the potential harm of a DPA oninnocent employees and shareholders; (2)judicial approval of the DPA; (3) appointmentof federal monitors by a federal judge ormagistrate and payment of the monitoraccording to a pre-approved fee schedule; and(4) judicial determination as to whether any ofthe terms of the DPA have been breached. Inaddition, congressional requests have beenmade to DOJ for more details about the no-bidcontracts for the monitors. While there areseparation of powers problems with some ofthese suggestions, there is widespread criticismof DOJ's practice in this area.

Responding to some of this criticism, onMarch 7, 2008, DOJ issued new guidelines onthe selection, scope of duties, and duration ofmonitors. Memorandum from Craig S.Morford, Acting Deputy Attorney General,Selection and Use of Monitors in DeferredProsecution Agreements and Non-ProsecutionAgreements with Corporations (March 7,2008). Under this new policy, the DeputyAttorney General would approve theappointment of monitors. This change inpolicy came just a few days beforecongressional oversight hearings were held onDPAs by the House Committee on theJudiciary, Subcommittee on Commercial andAdministrative Law (March 11, 2008).

Conclusion. Prosecutors have sharplyincreased the use of pretrial diversion over thelast five years against corporations. Although

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DPAs and NPAs have prevented negativeexternalities that would otherwise ensue fromprosecution, the terms imposed have raisedserious questions about overreaching by federalprosecutors, which imposes additional costs onthe corporation, its employees, and others.While DOJ has long exercised its authorityunder RICO to have monitors or receiversappointed to oversee labor unions whoseleaders have been found guilty of racketeering,no similar authority exists for DOJ's closesupervision of corporations that have enteredinto DPAs.

As Professor Brandon Garrett of theUniversity of Virginia Law School concludedfrom his review of NPAs and DPAs "[f]ederalprosecutors have stepped far outside of theirtraditional role of obtaining convictions, and, indoing so, [sought] to reshape the governance ofleading corporations, public entities, andultimately entire industries. This developmenthas gone largely unexamined." Brandon L.Garrett, Structural Reform Prosecution, 93 VA.L. REV. 853, 936 (2007). With recentcongressional interest in this subject, and DOJ'snew policy on the appointment of monitors, along overdue examination of the DPA practicehas only begun.

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RECOMMENDATIONS

1. DOJ should establish an advisory committee under the Federal Advisory Committee Act(FACA) consisting of prosecutors, corporate and defense counsel, and other interestedparties to develop a transparent and consistent policy setting forth clear and uniformguidance for the use of pretrial diversion that will be considered by all U.S. Attorney'sOffices and Main Justice in determining whether they will decline prosecution, or proposeeither a DPA or NPA. The Deputy Attorney General should review proposed decisionsto use pretrial diversion to ensure consistency and curtail abuse. Corporations and defensecounsel need predictability and guidance in making major decisions that could haveenormous impact on the company, its employees, shareholders, and the economy.

2. DOJ should not limit the use of NPAs and DPAs to corporations but should also use themfor individuals accused of regulatory offenses if DOJ rejects the use of administrative andcivil remedies, and does not decline prosecution altogether.

3. DOJ should develop guidance that directs prosecutors to exercise their charging discretionregarding corporations in the following manner:

A. Decline prosecution altogether if civil or administrative remedies are sufficient toremedy the violation, provide restitution, and deter future wrongdoing.

B. If wrongdoing exists at the upper level management, but is isolated, an NPA shouldbe used for the corporation when non-criminal remedies are not appropriate, butonly if the company cooperates.

C. If wrongdoing was widespread throughout the company, and remedial measures arelikely to be effective, a DPA should be offered to the company with appropriateconditions that do not unduly interfere with corporate governance.

D. If wrongdoing is widespread and the corporation is a repeat offender, only thenshould criminal prosecution be considered.

4. DPAs and NPAs should provide for pre-indictment review if DOJ claims that thecorporation breached any of the terms or conditions.

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REFERENCE MATERIALS

Note: A listing of WLF publications relevant to this chapter can be found in the Appendix.

Preet Bharara, Corporations Cry Uncle And Their Employees Cry Foul: Rethinking ProsecutorialPressure on Corporate Defendants, 44 AM. CRIM. L. REV. 53 (2007).

LAWRENCE D. FINDER & RYAN D. MCCONNELL, AM. BAR ASS'N, WHILE COLLAR CONFERENCE,ANNUAL CORPORATE PRE-TRIAL AGREEMENT UPDATE-2007 (March 2008).

Lawrence D. Finder & Ryan D. McConnell, Devolution of Authority: The Department of Justice'sCorporate Charging Policies, 51 ST. LOUIS L.J. 1 (2006).

Brandon L. Garrett, Structural Reform Prosecution, 93 VA. L. REV. 853 (2007).

F. Joseph Warin & Andrew S. Boutros, Deferred Prosecution Agreements: A View From theTrenches and a Proposal for Reform, 93 VA. L. REV. IN BRIEF 107 (June 18, 2007).

F. Joseph Warin & Jason C. Schwartz, Deferred Prosecution: The Need for Specialized Guidelinesfor Corporate Defendants, 23 J. CORP. L. 121 (1997).

Candace M. Zierdt & Ellen S. Podgor, Corporate Deferred Prosecutions Through The LookingGlass of Contract Policing, 96 KY. L.J. 1 (2007).

Websites:

HHS Listing of Corporate Integrity Agreements, http://oighhs.gov/fraud/cia/index.

Hearing on Deferred Prosecution: Should Corporate Settlement Agreements Be Without Guidelines?Before the House Subcomm. on Commercial and Admin. Law of the Comm. on the Judiciary (March11, 2008) (written testimony available at http://judiciary. house.gov/oversight.aspx?ID=425.).

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TIMELINE: DEFERRED PROSECUTION AND NON-PROSECUTION AGREEMENTS

1974: Speedy Trial Act of 1974 provides for deferred prosecution agreements, approvedby the court. 18 U.S.C. § 3161(h)(2).

1986: Department of Defense (DOD) develops Corporation Integrity Agreements (CIAs)that provide for leniency for companies that self-report violations.

May 1992: First DOJ Non-Prosecution Agreement (NPA) with a corporation entered into withSalomon Brothers.

Aug. 1993: DOJ's Antitrust Division develops Corporate Leniency Policy providing immunityfrom prosecution if company is first to report an antitrust violation.

Dec. 1993: First Deferred Prosecution Agreement (DPA) with a corporation entered into withArmour of America.

1996: Health and Human Services (HHS) develops CIAs.

1997: DOJ establishes general guidance for U.S. Attorneys using pretrial diversion, butguidance not geared for corporations.

Mar. 2002: Arthur Andersen indicted in Enron scandal.

July 2002: Corporate Fraud Task Force established by President Bush.

1992-2002: 18 NPAs and DPAs were made with DOJ over 10-year period.

2003-2007: 85 NPAs and DPAs were made with DOJ over 5-year period.

Jan. 2003: Memorandum of Larry Thompson, Deputy Attorney General, Principles of FederalProsecution of Business Organizations.

Jan. 2003: Stolt-Nielsen, S.A. receives immunity agreement from DOJ's Antitrust Division.

Mar. 2004: DOJ revokes Stolt-Nielsen immunity agreement; Stolt-Nielsen sues DOJ.

June 2005: Shell Oil NPA for securities violation; mild conditions imposed by U.S. Attorneyfor the Southern District of New York. However, Bristol-Myers Squibb DPA forsimilar violation imposed by U.S. Attorney for New Jersey results in large finesand strict conditions, including the endowment of a chair in business ethics at SetonHall University Law School, the alma mater of the U.S. Attorney.

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Aug. 2005: KPMG DPA requires penalties of $456 million and full cooperation; KPMG limitsadvancement of defense fees to targeted employees.

Mar. 2006: Third Circuit rules that Stolt-Nielsen cannot seek pre-indictment review ofimmunity termination by DOJ. Stolt-Nielsen, S.A. v. United States, 442 F.3d 177(3d. Cir. 2006).

June 2006: Judge Kaplan rebukes DOJ for pressuring KPMG to withhold defense fees totargeted partners. United States v. Stein, 435 F. Supp. 2d 330 (S.D.N.Y. 2006).

July 2006: Operations Management International, Inc. DPA requires $1 million to help endowa Chair of Environmental Studies at the U.S. Coast Guard Academy.

Sept. 2006: The monitor overseeing the DPA with BMS and the New Jersey U.S. Attorneyrecommends that BMS fire its CEO and General Counsel, which it did, eventhough there was no finding of breach of the 2005 DPA.

Dec. 2006: McNulty Memo issued, curbing prosecutors' requests for waiver of privileges andwithholding of defense fees to targeted employees.

Mar. 2007: DOJ resolves criminal indictments against Reliant Energy Services, Inc. and fourexecutives with DPAs due to weakness of government's charges that the companyand executives were manipulating California's energy market.

Sept. 2007: U.S. Attorney for New Jersey enters into separate DPAs with five medical supplycompanies, including Zimmer Holdings, and in a no-bid contract, appoints formerAttorney General Ashcroft as a monitor who could receive up to $52 million infees.

Nov. 2007: Court dismisses indictment against Stolt-Nielsen, ruling that company compliedwith terms of the NPA. United States v. Stolt-Nielsen, S.A., 524 F. Supp. 2d 609(E.D. Pa. 2007). DOJ declines to appeal.

Dec. 2007: U.S. Rep. Bill Pascrell, Jr. (D-NJ) proposes written guidelines by DOJ for enteringinto DPAs and judicial oversight over appointment of monitors.

Jan. 2008: U.S. Rep. Frank Pallone, Jr. (D-NJ) introduces legislation (H.R. 5086) that wouldrequire the Attorney General to issue guidelines with respect to DPAs and judicialoversight over compliance with the DPA and appointment of monitors.

Mar. 2008: DOJ issues new guidelines regarding the selection and approval of monitors by theDeputy Attorney General. House Judiciary Subcommittee holds hearings on theissue.

Chapter Seven

U.S. Sentencing Guidelines

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“There is no question that post-Enron, post-WorldCom, corporatedefendants and white-collar defendants . . . have been treated muchmore harshly. It has reached the point of absurdity.”

Barry Boss, Esq., Cozen O'Connor (2007)

Chapter Seven

U.S. SENTENCING GUIDELINES

Background. In 1984, Congress enactedthe Sentencing Reform Act (SRA) to

implement two major objectives. First,Congress wanted to establish "truth insentencing" by abolishing parole andinstituting, instead, a determinant sentencingscheme. Defendants would no longer beeligible for parole after serving only one-thirdof their time; instead, the sentence imposedwould be, for the most part, the sentenceactually served. Second, Congress wanted tostrip judges of their broad sentencing discretionand require them to impose uniform sentencesby using mandatory Sentencing Guidelines toreduce perceived unwarranted sentencingdisparities for similar crimes.

Thus, contrary to popular belief, the SRAwas not a "get tough on crime" law. Rather,Congress wanted more sentencing uniformityand wanted defendants to serve their full prisonsentence. Unfortunately, as this chapter willdiscuss, the Commission misunderstoodCongress's mandate and ran amok. TheCommission arbitrarily set sentences foroffenses well above what they should havebeen, and all but discarded probation as asentencing option. The result was undulysevere sentences for tens of thousands of

defendants, including many white-collardefendants, resulting in a huge cost to societyand the taxpayers. Because approximately 95percent of all defendants plead guilty, thesentence imposed is the critical feature of thecriminal justice system.

The SRA also specified different methodsfor computing fines imposed on individuals andcorporations. While individuals wouldcontinue to be subject to maximum fines asprovided by the underlying statute in question,corporations, on the other hand, would now besubject to much larger fines of $500,000 ortwice the gain or loss per felony count underthe Alternative Fines Act.

On November 1, 1987, the new SentencingGuidelines went into effect, but only forindividuals. The Commission deferredpromulgating Organizational Guidelines forcorporations and other entities to allow forfurther study and deliberation. Four years later,Guidelines Manual, Chapter Eight-Sentencingof Organizations, went into effect on November1, 1991. During the interim period,corporations were sentenced to probation andfined at the discretion of the sentencing judgeunder the governing substantive statute. On the

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other hand, the mandatory Guidelines forindividuals required that sentences imposed bydistrict court judges fall within a small fixedrange for various categories of offenses andoffenders characteristics.

Thus, a Guideline sentence for a particularoffense was determined by computing aculpability score, which in turn, translated intoa Guideline sentence that a judge was requiredto impose, with limited discretion to departfrom that sentence. The score was based on thenature of the crime committed, includingaggravating and mitigating factors or offensecharacteristics, and the criminal history of theoffender. Sentencing factors that were usuallyconsidered by judges in the pre-Guideline era,such as the age, health, socio-economicbackground, and other personal characteristicsof the defendant, could no longer beconsidered.

A culpability score greater than 10 for afirst offender required incarceration for at leastsix months, which sharply increased in durationas the culpability score increased. For example,a score of 16, which is easily obtained in manywhite-collar cases and environmental cases,translates into a Guideline sentence of 21-27months in prison. Scores of 12 or belowallowed judges to impose a "split sentence,"dividing the time to be served betweenincarceration and home detention or a half-wayhouse. Probation was available for the raredefendant whose score was 8 or below. As willbe discussed, sentences imposed under theGuidelines for many offense categories aregenerally twice the length of pre-Guidelinesentences served, and even more so forenvironmental offenses and white-collaroffenses.

Harsh Guideline Sentences for MinorEnvironmental Offenses. Even thoughCongress directed the Sentencing Commission

to devise Guideline sentences that would reflectthe average sentence actually served in pre-Guideline days, and provide for probation forfirst-time offenders in non-violent, non-seriousoffenses, the sentences dictated by theGuidelines deviated significantly from pre-Guideline practice. The sentences imposedwere generally regarded by defendants andeven many judges to be unduly harsh andinflexible. This was particularly true withrespect to sentences imposed for environmentalinfractions under Part 2Q of the Guidelines.

For example, felony prosecutions of minorwetland violations involving the placement ofclean fill on private property deemed to be"wetlands," without a federal permit, requiredprison sentences of two or more years, eventhough such infractions were typically handledeither administratively or civilly before theGuidelines. See, e.g., United States v. Pozsgai,897 F.2d 524 (3d Cir. 1990) (27-monthsentence for placing clean fill on privateproperty, the longest prison sentence for anenvironmental offense at the time); Mills v.United States, 36 F.3d 1052 (11th Cir. 1994)(24-month sentence imposed on father and sonfor placing 11 piles of clean building sand ontheir quarter-acre lot allegedly containingwetlands). In another wetland case, previouslydiscussed in Chapter Three, federal prosecutorsurged an incredulous court to send the propertyowner to prison for over two years for simplymoving "dirt or sand from one end of [his]property to the other end [that does] not impactthe public in any way whatsoever." UnitedStates v. Rapanos, No. 03-20023, (E.D. Mich.).Sentencing Transcript at 16 (March 15, 2005).

Two other previously discussed casesfurther illustrate the Guidelines' severity. InUnited States v. McNab, three seafoodimporters were sentenced to prison for a record97 months, or a full eight years, as firstoffenders for a minor regulatory offense under

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the Lacey Act of importing frozen seafood inplastic bags rather than cardboard boxes. 331F.3d 1228 (11th Cir. 2004). In United States v.Hansen, 262 F.3d 1217 (11th Cir. 2001), theowner of a chemical facility, the plant manager,and the temporary CEO were charged long afterthe plant was shut down for "knowingendangerment" under the CWA. They were allconvicted and were sentenced as first offendersunder the Guidelines to prison terms of nine,six, and four years respectively, even thoughthere was no showing that the wastewatercaused any serious harm to any employee.

Even misdemeanor violations of certainenvironmental statutes — where the maximumstatutory prison sentence for the worst offenderis one year in prison — were subject to harshtreatment. In many cases, the Guidelinesactually called for even longer sentences thanallowed by the underlying statute, therebycapping the sentence at the statutory maximumof one year. The one-year maximum sentencethus became a mandatory minimum sentence fora first offender for a minor regulatoryinfraction. See Benjamin S. Sharp & LeonardH. Shen, The (Mis)Application of SentencingGuidelines To Environmental Crimes, in BNATOXICS L. REP. 189 (July 11, 1990). Before theGuidelines, first offenders found guilty ofmisdemeanor offenses often receivedreasonable sentences consisting of a fine,probation, and/or community service.

Because the Guidelines produced suchsevere sentences, both the EPA and federalprosecutors eagerly exploited them, knowingthat judges would be required to mete out harshand unfair sentences for minor regulatoryoffenses that would likely have been handledadministratively or civilly in the pre-Guidelineera. Consequently, many defendants wereforced to plead guilty to charges, and evenserve some time in prison, rather than facemany more months and years in prison under a

Guideline sentence imposed after trial andconviction. Indeed, the gross disparity in manycases between a Guideline sentence imposed aspart of a plea deal and a sentence imposed iffound guilty after trial led many observers toconclude that a person was being severelypunished for exercising his Sixth Amendmentright to stand trial.

This disparity in sentencing was due to thecommon practice of "charge bargaining" andthe more controversial "fact bargaining." In theformer, the prosecutor would agree to dropcertain charges if the person pled guilty; in thelatter, the prosecutor would represent to thecourt that certain "facts" of the offense applied,such that a specific lower sentence under theGuidelines would be imposed rather than thehigher one if the person were found guilty by ajury. Those who were innocent of the crimescharged would be forced into plea bargainsrather than risk being found guilty andreceiving a draconian sentence. Thus, theprosecutors essentially selected the sentencethat they wanted, rather than allowing the courtto use the sentencing discretion it had exercisedin the pre-Guideline days.

Pre- and Post-Sarbanes-Oxley. In 2001,the Commission considered a comprehensiverevision to the Guidelines relating to economicoffenses in its Economic Crime Package.There was a major revision to the definition of"loss" to approximate the monetary harmresulting from an offense, and thus, to increasethe fines and penalties depending upon the sizeof the loss. In 2002, following the wake of theEnron scandal, Congress enacted the Sarbanes-Oxley Act. Section 805(a)(5) requires theSentencing Commission to amend itsGuidelines to ensure that they are sufficient topunish and deter corporate wrongdoing withrespect to fraud and obstruction of justice. TheCommission responded with harsh individualGuidelines that essentially doubled or nearly

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tripled the sentences for individuals convictedof fraud or obstruction. As for organizations,the Commission's Ad Hoc Advisory Group onthe Organizational Sentencing Guidelines,which was established before Sarbanes-Oxley,continued to develop a comprehensivecompliance program for corporations, whichthe Commission adopted in 2004.

The impact of Sarbanes-Oxley was severe.For example, Jamie Olis of DynegyCorporation was originally sentenced in 2004to prison for 25 years under the Guidelines forhis role in securities fraud case in which he didnot benefit monetarily. On appeal, the FifthCircuit reversed, based on a re-computation ofthe loss due to the fraud. United States v. Olis,429 F.3d 540 (5th Cir. 2005). The district courtresentenced Olis on September 22, 2006, andimposed a more reasonable six-year term,principally because the harsh Guidelines wereno longer mandatory under the SupremeCourt's 2005 United States v. Booker decision.543 U.S. 220 (2005). Nevertheless, the six-year term, roughly equivalent to a pre-Guideline sentence of 18 years, is severe forthis particular offense and offender.

Other draconian sentences were imposedduring this time period. John Rigas, the 80-year old former chair of Adelphi, wassentenced to prison for 15 years. BernardEbbers, the 64-year-old ex-chair of WorldCom,received a 25-year prison term, prompting theSecond Circuit to note that this sentence was"longer than the sentences routinely imposedby many states for violent crimes, includingmurder, or other serious crimes such as serialchild molestation." United States v. Ebbers,458 F.3d 100, 129 (2d Cir. 2006). Jeff Skilling,ex-CEO of Enron, was sentenced to a 24-yearprison term. To be sure, serious fraud casesshould be criminally prosecuted andappropriate punishments imposed, but as BarryBoss, a leading white-collar defense attorney

concluded, "[t]here is no question that post-Enron, post-WorldCom, corporate defendantsand white-collar defendants . . . have beentreated much more harshly. It has reached thepoint of absurdity." Cristin Schmitz, AppealsCourt Shows White-Collar Criminals No Mercy,INSIDE COUNSEL (Nov. 2007). For an excellentcritique of this harsh sentencing practice, seeEllen S. Podgor, The Challenge of White CollarSentencing, 97 J. OF CRIM. L. & CRIMINOLOGY

731 (2007).

Misguided Environmental Guidelines.One of the reasons for harsh white collar prisonsentences in general, and for environmentaloffenses in particular, was the Commission'sfailure to promulgate the Guidelines based onhistorical sentencing practice, as Congressdirected. The Commission was required toconsider the length of time actually served inprison in pre-Guideline cases, not just thelength of the sentence imposed by the court.As noted, before 1987, white collar and othernon-violent defendants who were sentenced toprison for more than one year were generallyeligible for parole, and would likely receive it,after serving only one-third of the sentenceimposed. See 18 U.S.C. § 4205(a) (repealed).Thus, if a defendant were sentenced to prisonfor three years under the pre-Guideline regime,that defendant would be eligible for parole afterserving one year in prison.

Because parole was abolished by the SRA,a one-year sentence imposed today under theGuidelines is functionally equivalent to a pre-Guideline sentence of three years. A good ruleof thumb is to multiply a Guideline sentence bya factor of three to gauge its severity vis-a-vispre-Guideline practice. Thus, a Guidelinesentence of two years for a minor wetlandoffense is functionally equivalent to anexcessive pre-Guideline sentence of six years.Because such a long prison sentence was neverimposed or even contemplated for the worst

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polluter, let alone for a minor regulatoryoffense without environmental damage, theGuideline sentences were simply unreasonableand fatally flawed. Unfortunately, the courts,prosecutors, and even defense attorneys havenever fully grasped or appreciated this basicreality of comparing pre- and post-Guidelinesentencing schemes. Instead of challenging thereasonableness of the particular Guideline atissue directly, most practitioners tacticallyargue and litigate "inside the box" or around theedges of the Guidelines, trying to convince thesentencing court to shave a point here or a pointthere to reduce the culpability score under theGuidelines, sparing their clients, at best, only afew extra months in prison from an otherwiseunreasonably long sentence.

If the Commission had properly done itsresearch, it would have quickly discovered thatpre-Guideline sentences for environmentaloffenses were fairly uniform and rarelyinvolved incarceration; rather, suspendedsentences, probation, fines, and restitution werethe norm. Where incarceration was imposed,the length of the sentence was usually a fewweeks or months, which adequately served theprinciples of punishment and deterrence. Seegenerally U.S. ENVTL. PROTECTION AGENCY,OFFICE OF ENFORCEMENT, SUMMARY OF

CRIMINAL PROSECUTIONS RESULTING FROM

ENVIRONMENTAL INVESTIGATIONS (May 31,1991) (summarizing disposition of allenvironmental criminal cases from fiscal years1983 to 1991). Clearly, the Guidelinesentences for environmental offenses do notrepresent the "typical" or "average" pre-Guideline sentence that Congress wanted theCommission to use. More troubling, theCommission has never provided any reasonsfor the sharp departure from past sentencingpractice as it is required to do, thereby makingthe resultant Part 2Q Environmental Guidelinesarbitrary and capricious.

Organizational or Corporate SentencingGuidelines. As previously noted, onNovember 1, 1991, the Sentencing Commissionestablished Chapter Eight of the Guidelines forOrganizations. Because corporations obviouslycould not be imprisoned, the focus of theOrganizational Guidelines was centered onestablishing a range of fines for the offense inquestion; compensating victims for any harm inthe form of restitution; disgorging illegalprofits; regulating the terms of probationarysentences; and implementing other applicablepenalties such as forfeiture. Notably, theOrganizational Guidelines do not contain finelevels for many environmental, food, drug andconsumer safety offenses for whichcorporations may be held vicariously liable.The fines for those offenses are based on thesubstantive statute in question.

Chapter Eight of the Guidelinesestablished a "carrot and stick approach" todetermine the level of fines and otherpunishment to be imposed on a corporationfound guilty of a crime. Thus, the Guidelinesprovide incentives to companies who haveeffective policies, practices, and culturesdesigned to deter and prevent misconduct, andconcomitantly, punish more harshly thosecompanies that do not. Chapter Eight has threemajor subdivisions: Part B- "Remedying theHarm from Criminal Conduct;" (2) Part C-"Fines;" and (3) Part D- "OrganizationalProbation."

Corporate Fines and Penalties. Part B ofChapter Eight is designed to focus onrestitution to the victims of the offense. Part Cestablishes fine levels for most offenses,excluding some offenses such as environmentaland food and drug violations. In short, the finelevel for a felony is the greatest of 1) the finespecified in the statute; 2) $500,000; or 3) twicethe gross gain received by the company or lossinflicted on victims.

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Section 8C2.5 lists the various culpabilityfactors that make up the culpability score,which, in turn, determine the fine level andother punishment to impose. Those six factorsare (1) involvement in or tolerance of thecriminal activity; (2) prior history; (3) violationof a prior order or probation; (4) obstruction ofjustice; (5) effective compliance and ethicsprogram; and (6) self-reporting, cooperation,and acceptance of responsibility. U.S.S.G. §§8C2.5(b)-(g).

Corporate Probation. Part D of ChapterEight gave the court broad discretion to imposeprobation conditions for organizations,including establishing and implementing aneffective compliance program. The SentencingCommission established the following sevencriteria that were the minimum required fordetermining whether a company had an"effective program to prevent and detectviolations of law," which would then be takeninto account to reduce the company'sculpability score, and hence, reduce the penaltyimposed on a corporation:

(1) The organization must haveestablished written complianceprocedures to reduce criminalconduct, which must befollowed by all employees andagents.

(2) High-level personnel must beassigned the responsibility tooversee the complianceprogram.

(3) The organization must notdelegate authority to employeesthat the company knows, orshould know, have a propensityto violate the law.

(4) T h e c o m p a n y m u s t

communicate its complianceprogram to all employeesthrough effective trainingprograms, publications, and thelike.

(5) The company must havemonitoring and aud itingsys tems to ensure thatcompliance is being carried out,as well as provide "whistle-b lowe r" p r o t e c t i o n s toemployees.

(6) P r o p e r a n d a d e q u a t edisciplinary measures must betaken against employees forfailing to detect or prevent anoffense.

(7) If an offense occurs, thecompany must respond to theoffense and take remedialmeasures to prevent similarviolations. Companies mustfu l ly cooperate in th einvestigation, including, wherenecessary, waiving attorney-client privilege (This waiverpolicy, adopted in 2004, wasrevoked by the Commission in2006.).

Widespread Impact of Guideline'sCompliance Program. The SentencingCommission's Chapter Eight complianceprogram criteria quickly began to serve as amodel for the courts, DOJ, regulatory agencies,and even Congress in devising enforcementpolicies. For example, in United States v.Lucas Aerospace Communications &Electronics, 94 Cr. 3492 (E.D.N.Y. 1994), thedistrict court imposed the Guidelines' effectivecompliance program criteria as a condition ofprobation. In In re Caremark, Int'l Inc.

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Derivative Litigation, 698 A.2d 959, 970 (Del.Ch. 1996), the Delaware court ruled thatdirectors could be held liable in shareholderderivative lawsuits for not establishing aneffective compliance program along the linesoutlined in the Sentencing Guidelines.

In December 1995, the EPA issued apolicy that similarly tracked the Guidelines'compliance program in determining both theamount of civil penalties and whether to makecriminal enforcement referrals to theDepartment of Justice. HHS followed suit witha similar policy. The 1999 Holder Memo andits progeny, discussed in Chapters Three andFive, expressly refer to the SentencingCommission's Compliance Program criteria asa consideration for exercising DOJ's chargingdiscretion.

In September 2001, on the tenthanniversary of the Organizational Guidelines,the Commission established a 15-member AdHoc Advisory Group on the OrganizationalSentencing Guidelines to review theeffectiveness of the Guidelines, with emphasison examining effective corporate complianceprograms. While the advisory group wascomposed of members of the defense bar,Justice Department, academia, and consultingfirms, there were remarkably no corporatemanagers, officers, or in-house counsel servingon the advisory group.

Waiver of Attorney-Client Privilege. OnOctober 7, 2003, after a series of hearings andpublic comment, the Ad Hoc Advisory Groupissued its report to the Commission. U.S.SENT'G COMM'N, REPORT OF THE AD HOC

ADVISORY GROUP ON ORGANIZATIONAL

SENTENCING GUIDELINES (Oct. 7, 2003). TheAdvisory Group recommended that theCommission promulgate a stand-aloneGuideline in Chapter Eight defining an"effective program to prevent and detect

violations of law," drawing upon guidancereflected in the current Application Notes toChapter Eight and eliminating ambiguities inthe original Guidelines. Notably, the AdvisoryGroup recommended that waiver of theattorney-client privilege may be required insome circumstances to satisfy the requirementof demonstrating "cooperation" withgovernment prosecutors. The Advisory Groupalso recommended that for smallerorganizations, an increase in the culpabilityscore should not be required due to the inabilityof smaller companies to establish andimplement a costly compliance program.

On May 1, 2004, responding to theAdvisory Group's recommendations, theCommission issued revised OrganizationalGuidelines expanding the scope of what itregarded as an "effective compliance and ethicsprogram," which would make a companyeligible for penalty mitigation. In particular,the revisions focused on the need forcompanies to promote an organizational culturethat encourages ethical and legal conduct. Atthe same time, there would be no mitigationpoints if the company unreasonably delayedreporting the offense or if managementparticipated or condoned the illegal conduct.Those revisions, including the language onattorney-client privilege waiver, becameeffective on November 1, 2004.

Shortly thereafter, a storm of criticismfrom the organized bar and corporatecommunity about DOJ's waiver policy spilledover to the Commission's waiver policy. Thesame organizations and individuals described inChapter Five who opposed DOJ's waiver policyfiled comments with the Commission urging itto revoke its policy. On April 5, 2006, theCommission did just that by unanimous vote.

Recent Corporate Sentencing Data. InFY 2007, 196 organizations were sentenced

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under Chapter Eight Organizational Guidelines,of which 84.7 percent pled guilty (11 percentlower than the overall plea rate of 95.8percent). U.S. SENT'G COMM'N 2007SOURCEBOOK OF FEDERAL SENTENCING

STATISTICS Table 53 (attached hereto).

Of the 196 cases, 62 were for fraud (aboutone-third), followed by 51 environmentaloffenses (about one-fourth). Other categoriesincluded import/export offenses (11 cases),food and drug offenses (9 cases), and antitrustoffenses (7 cases). The number oforganizations sentenced in 2007 was about 10percent smaller than the 217 reported in 2006.2006 SOURCEBOOK, Table 53. However, it wasover a four-fold increase from the 44organizations sentenced in 2004. 2004SOURCEBOOK, Table 53.

Fines and/or restitution were imposed in165 of those 196 cases, with an average fineover $7 million and the median of $131,500.The average restitution was just over $3million, and the median was $245,000. 2007SOURCEBOOK, Tables 52, 53 (attached hereto).In 2006, the average fine was $5.8 million andthe median was $50,000; the average restitutionwas almost $2 million, and the median was$362,000. 2006 SOURCEBOOK, Tables 52, 53.Thus, the average and median fines imposed in2007 were greater than those imposed in 2006.

In sharp contrast, the averageorganizational fine for all offenses in fiscal year1995 was $242,892, and the median fine was$30,000. In fiscal year 2001, the average fineskyrocketed to $2,154,929, and the median finedoubled to $60,000. Within four years, theaverage fine doubled to $4.5 million in fiscalyear 2005, considerably more than the inflationrate of approximately 10 percent over thoseyears. The trend is clearly higher fines fororganizations.

Only one of the 89 corporate defendantssentenced in 2007, for which the SentencingCommission provided information, had aneffective compliance and ethics program asprovided by U.S.S.G. § 8C2.5(f). See Table 54(attached hereto). Remarkably, only one of the89 organizations had a prior criminal oradministrative record, suggesting that thebusinesses were not recidivists, but lawabiding. Id.

Key Rulings on Sentencing Guidelines.On January 12, 2005, the Supreme Court issuedits landmark decision in Booker v. UnitedStates, 543 U.S. 220 (2005). The SupremeCourt ruled that the federal SentencingGuidelines violate a person's Sixth Amendmentright to a jury trial when judges base a sentenceon the Guidelines' aggravating factors, wherethey are not found by a jury beyond areasonable doubt. The Court remedied thisviolation by striking down the provision of theSentencing Reform Act that made theGuideline sentences mandatory for federaljudges. Henceforth, the Guidelines would beadvisory only, although judges would berequired to consider them as one of severalsentencing factors, as required by Congress.

Under 18 U.S.C. § 3553(a) Congressmandated that sentencing courts "shall imposea sentence sufficient, but not greater thannecessary, to comply with the purposes [ofpunishment]," namely, "(A) to reflect theseriousness of the offense, to promote respectfor the law, and to provide a just punishmentfor the offense; (B) to afford adequate [general]deterrence to criminal conduct; (C) to protectthe public from further crimes of the defendant[specific deterrence]; and (D) to provide thedefendant with needed educational orvocational training, medical care, or othercorrectional treatment in the most effectivemanner" (emphasis added). In addition, §3553(a)(6) requires courts to "avoid

7-9

unwarranted sentencing disparities amongdefendants with similar records who have beenfound guilty of similar conduct." Moreover, §3553(a)(3) requires courts to consider "thekinds of sentences available," meaningprobationary and other non-prison alternatives,such as home confinement, community service,fines, restitution, or a combination thereof.Unfortunately, this latter factor is oftenoverlooked or given little consideration.

The directive that the sentence be"sufficient, but not greater than necessary" tocomply with these sentencing purposes is theso-called "parsimony principle," an importanthallmark of a civilized society that does notinflict arbitrary, wanton, or gratuitouspunishment on its citizens. The Bookerdecision was expected to curb the power ofoverzealous prosecutors who effectivelycontrolled what prison sentences would bemeted out, and restore sentencing discretion toexperienced and impartial judges. The JusticeDepartment, however, continued to instructU.S. Attorneys to request the imposition of themaximum sentences permitted under theGuidelines in individual cases.

Unfortunately, since Booker, mostsentencing and appellate courts continued torely on the Sentencing Guidelines to justifyimposing otherwise harsh sentences, merelypaying lip service to other sentencing criteria.When district court judges did take their dutiesseriously and imposed sentences below theGuideline range, they often found thesesentences reversed on appeal at the urging ofthe Justice Department as being unreasonablylenient under the advisory Guidelines.

Case Study: United States v. Thurston.A perfect illustration of the fundamental flawsof the Sentencing Guidelines is the white-collarcase of United States v. Thurston, 358 F.3d 51(1st Cir. 2004). Two company executives were

each charged with one count of conspiracyunder 18 U.S.C. § 371 with respect to theircompany's Medicare billing practice forlaboratory blood testing. DOJ offered thecompany President, whom the district courtdetermined to be the prime architect of thechallenged practice, a plea bargain, which heaccepted. He was allowed to plead nolocontendere, was not required to furnish thegovernment with any assistance, and receiveda reasonable sentence of three years ofprobation, which the government did notchallenge.

The government offered a similar plea dealto Thurston, who rejected the offer because hebelieved he was innocent, and exercised hisconstitutional right to stand trial. Two defenseexpert witnesses testified at trial that thechallenged blood testing procedures were alawful industry practice. There was noallegation or finding that Mr. Thurstonfinancially benefitted personally from thecompany's billing practice, unlike theallegations of fraud and personal enrichmentmade in the Enron-type cases. Nevertheless, ajury found him guilty of one count ofconspiracy as charged. The maximum sentenceallowed by law is five years or 60 months. 18U.S.C. § 371.

Although the government had readilyaccepted a probationary sentence as suitablepunishment for the more culpable co-defendant,and thus tacitly acknowledged that it served theprinciples of punishment as provided by §3553(a), the Guideline sentence for Thurstonwas computed as 78 to 97 months. But becausethe statutory maximum punishment was 60months, the excess over 60 months had to betrimmed to fit the statutory maximum. Thebizarre and draconian Guideline sentence,therefore, required that a first offender such asThurston be sentenced to the statutorymaximum as a mandatory minimum. The

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district court departed from the Guidelines, andimposed a reasonable split six-month term —three-months to be served in prison and threemonths to be served by home detention —followed by 21 more months of supervisedrelease. The court did so in order to avoid agross disparity with the probation sentencegiven to the more culpable co-defendant — thevery rationale for the Guidelines — andbecause of Thurston's civic and charitablehistory. This reasonable sentence "outraged theprosecutors" and the government appealed.358 F.3d at 55. Incredibly, DOJ argued onappeal that when Congress enacted the SRAand required courts to "avoid unwarrantedsentence disparities among defendants withsimilar records who have been found guilty ofsimilar conduct," it meant to reduce disparity insentencing nationwide; gross disparity insentences between two similar defendants inthe very same case, however, somehow doesnot frustrate Congress's goal of reducingsentencing disparity.

The First Circuit reversed Thurston'ssentence, finding that the then-mandatoryGuidelines "bind us and they bind the districtcourt," and therefore, downward departures forunwarranted disparities "in sentences amongco-defendants was impermissible." Id. at 78.Mr. Thurston would have to return to prisonand serve the maximum five years. Instead,Thurston sought review in the Supreme Court,which summarily vacated the judgment andremanded the case following its Bookerdecision. 543 U.S. 1097 (2005).

On remand, a different sentencing judge,held a searching two-day hearing. With theGuidelines no longer mandatory but advisory,the judge imposed the original 6-month splitsentence, carefully explaining his reasons.Significantly, the court concluded that thesentence was "sufficient and no more thannecessary to serve the statutory purposes" of §

3553(a). This sentence apparently outragedDOJ prosecutors yet again and the governmentappealed Thurston's sentence to the FirstCircuit for a second time.

The First Circuit reviewed Thurston'ssentence this time for "reasonableness" underthe post-Booker voluntary Guidelines andreversed Thurston's sentence yet again. TheFirst Circuit held that the sentence wasunreasonable, in part, because in the court'sview, the Guidelines — which called for asentence that was much longer than thestatutory maximum for a first offender — arean "important consideration" for a sentencingcourt because they have the "imprimatur" of anallegedly "expert agency." Thurston (II), 456F.3d 211, 215 (1st Cir. 2006). The court ofappeals reversed Mr. Thurston's sentence for asecond time. It further held that any sentenceimposed on remand that falls below a three-year prison term (an effective pre-Guidelinesentence of 9 years), would be unreasonablylenient and, presumably, would be reversed yetagain. Id. at 220.

Astonishingly, the court of appeals furtheropined that if it were the sentencing authority,it would impose a sentence "at or near" thestatutory maximum term of five years, eventhough Congress expressly directed that suchmaximum sentences be reserved for repeatfelons who engage in drug dealing or violentcrime. Id. Thurston was forced to file a secondpetition to the Supreme Court, which was heldpending the Court's decision in Gall v. UnitedStates. As discussed herein, the Court made itclear in Gall that district courts were to havebroad discretion in imposing a non-Guidelinesentence as long as the sentence wasreasonable. On January 7, 2008, the Courtgranted, vacated, and remanded the Thurstoncase back to the First Circuit yet again.Thurston v. United States, 128 S. Ct. 854(2008). On March 7, 2008, the First Circuit

7-11

ordered additional briefs to be filed by the endof April. The outcome of this case will bewatched closely to see how lower courtsinterpret Gall. After five tortuous years oflitigation, Mr. Thurston, hopefully, will not berequired to serve any more time in prison.

Rita v. United States; Gall v. UnitedStates. In order to resolve confusion amonglower courts as to the weight of the nowadvisory Guidelines, the Supreme Court issuedits second major opinion on the Guidelines onJune 21, 2007 in Rita v. United States, 127S.Ct. 2456 (2007). The Court held that a courtof appeals may regard a Guideline sentence aspresumptively reasonable, but was not requiredto do so. District courts, while they mustconsider the Guidelines as one factor indeciding what sentence to imposing, need notregard them as presumptively reasonable either.Rather, district courts must consider otherfactors, such as the defendant's background ornature of the offense, as required by the generalsentencing statute, to justify imposing asentence outside the Guideline range.

At the same time, the High Court wasconsidering a companion case, Claiborne v.United States, which raised the important issueof whether district courts were required to show"extraordinary reasons" when the sentenceimposed substantially departed from theGuideline sentence. Because Mr. Claibornedied before the decision was issued, the casewas dismissed as moot. In its place, the Courtheard and decided a similar case, Gall v. UnitedStates, on December 10, 2007. 128 S. Ct. 586.The Court held in Gall that contrary to thearguments by DOJ and the rulings by somecircuits, district court judges need not provideextraordinary reasons the further they departfrom a Guideline sentence. As long as thesentence imposed by the district court is areasonable one, considering all the 18 U.S.C. §3553(a) factors, the sentence should be upheld.

Unfortunately, a sentence imposed within theharsh Guideline range would likely escapeclose appellate scrutiny. Accordingly, it isvitally important for defense counsel to urgethat courts use their broad discretion whenfashioning sentences and consider all thesentencing factors, rather than subscribe to thenotion that the Guidelines are still paramount.

Conclusion. While Congress hasconsidered several proposals since the Bookerdecision to reinstate the Guidelines in aconstitutional manner, there has been noconcerted effort to do so, and none is likely inthe near future. However, this may changedepending upon how courts apply the nowadvisory Guidelines and the public's reaction tothem. In the meantime, federal prosecutors canbe expected to continue demanding thatsentencing judges impose the highest Guidelinesentence in a particular case, and many judgeswill likely continue to follow the Guidelines,even though they are only advisory.

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RECOMMENDATIONS

1. The Sentencing Commission should abolish or substantially revise Part 2Q of theSentencing Guidelines covering environmental offenses. At a minimum, any revisionshould ensure that first offenders convicted of minor regulatory violations should beeligible for probation.

2. The offense level characteristics that are added to the base offense levels for variousoffenses should be eliminated to the extent they constitute "double-counting" of the scorealready built into the base offense level score.

3. The Commission should revise its Guidelines governing fraud and money laundering toensure that increased sentences based on economic loss or gain are properly computedbased on net gain rather than gross profits.

4. Defense counsel should vigorously argue that the Sentencing Guidelines are only advisory,and, in any event, are flawed because they do not fully consider actual sentences served inthe pre-Guideline era, and thus, should be given little or no weight by the sentencingauthority.

5. Courts should not regard a Guideline sentence as presumptively reasonable but shouldinstead exercise their independent sentencing discretion and consider other sentencingfactors as specified in 18 U.S.C. § 3553(a), including the parsimony principle. Inparticular, district court judges should multiply any prison sentence they intend to imposeby a factor of three to determine what that sentence would have been in the pre-Guidelineera when parole was available, in order to gauge the relative severity of the sentence.

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REFERENCE MATERIALS

Stephen Breyer, The Federal Sentencing Guidelines and the Key Compromises Upon Which TheyRest, 17 HOFSTRA L. REV. 1 (1988).

DEPT. OF JUST., ENV'T & NAT. RESOURCES DIVISION, ENVTL. CRIMES SEC. IN CONSULTATION WITH

THE ENVTL. CRIMES POL. COMM., SENTENCING GUIDELINES IN ENVIRONMENTAL PROSECUTIONS,INCLUDING THE USE OF SUPPLEMENTAL SENTENCING MEASURES (DEC. 2000).

Jamie L. Gustafson, Cracking Down on White-Collar Crime: An Analysis of the Recent Trend ofSevere Sentences for Corporate Officers, 40 SUFFOLK U. L. REV. 685 (2007).

James A. McLaughlin, Reducing Unjustified Sentencing Disparity,107 YALE L.J. 2345 (1998).

Erik Luna, Misguided Guidelines: A Critique of Federal Sentencing, Cato Policy Analysis (Nov.1, 2002).

Jeffrey S. Parker & Raymond A. Atkins, Did the Corporate Criminal Sentencing GuidelinesMatter? Some Preliminary Empirical Observations, 42 J. L. & ECON. 423 (Apr. 1999).

Ellen S. Podgor, The Challenge of White Collar Sentencing, 97 J. OF CRIM. L. & CRIMINOLOGY 731(2007).

Cristin Schmitz, Appeals Court Shows White-Collar Criminals No Mercy, INSIDE COUNSEL (Nov.2007).

Benjamin S. Sharp & Leonard H. Shen, The (Mis)Application of Sentencing Guidelines ToEnvironmental Crimes, in BNA TOXICS L. REP. 189 (July 11, 1990).

KATE STITH & JOSE A. CABRANES, FEAR OF JUDGING: SENTENCING GUIDELINES IN THE FEDERAL

COURTS (1998).

U.S. ENVTL. PROTECTION AGENCY, OFFICE OF ENFORCEMENT, SUMMARY OF CRIMINAL

PROSECUTIONS RESULTING FROM ENVIRONMENTAL INVESTIGATIONS (May 31, 1991).

U.S. SENT'G COMM'N, REPORT OF THE AD HOC ADVISORY GROUP ON ORGANIZATIONAL

SENTENCING GUIDELINES (OCT. 7, 2003).

U.S. SENT'G COMM'N, 2007 SOURCEBOOK OF FEDERAL SENTENCING STATISTICS.

Ronald F. Wright, Sentences, Bureaucrats, and the Administrative Law, Perspective on the FederalSentencing Commission, 79 CALIF. L. REV. 3 (1991).

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TIMELINE: U.S. SENTENCING GUIDELINES

Sept. 1984: Congress enacts Sentencing Reform Act that establishes SentencingCommission, abolishes parole and eliminates judicial discretion insentencing by mandating uniform sentences under the Guidelines'Sentencing Table based on a culpability score. A dual system isestablished for imposing fines for individuals and organizations.

Nov. 1, 1987: Sentencing Guidelines go into effect for individuals only. Commissionstudies organizational sentencing proposals. Part 2Q of the Guidelinesgoverning environmental offenses for individuals effectively precludesor sharply limits probation as a sentencing alternative, contrary to pre-Guideline sentencing practice.

July 13, 1989: United States v. Pozsgai, 897 F.2d 524 (3d Cir. 1990). Court imposes27-month prison sentence on property owner for placing clean, non-hazardous fill on his own property deemed to be a wetland without apermit. At the time, it was longest prison sentence ever imposed for anenvironmental offense.

Nov. 1, 1991: Sentencing Guidelines for Organizations go into effect. U.S.SENTENCING GUIDELINES, CHAPTER EIGHT-SENTENCING ORGANIZATIONS. Part B provides for restitution; Part C establishes fine levels, and Part Dprovides for probation conditions. The Organizational Guidelinesprovide that corporations will be eligible for more lenient sentences ifthey establish an effective compliance program that, at a minimum,meets seven criteria, including auditing, monitoring and cooperation withauthorities.

Feb. 1992: Commission establishes Advisory Working Group on EnvironmentalSanctions for organizations. Working Group's secret proceedingschallenged in Washington Legal Found. v. U.S. Sentencing Comm'n, 89F.3d 897 (D.C. Cir. 1996). Final report issued in November 1993, butCommission does not adopt them.

Sept. 1996: In re Caremark, Int'l Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch.1996). Court rules that directors who do not ensure that a complianceprogram exists along the lines suggested by the Guidelines measure canbe held personally liable to shareholders in derivative action.

1997-1999: HHS adopts "model compliance plans" for health care providers similarto EPA policy that adopts the Guidelines' incentives to develop corporatecompliance programs.

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June 1999: Holder Memo issued by the DOJ allows prosecutors to consider acorporation's compliance program under the Guidelines in making acharging decision.

Sept. 19, 2001: Commission establishes 15-member Ad Hoc Advisory Group on theOrganizational Sentencing Guidelines to examine effectiveness ofcorporate compliance programs. The group is composed of members ofthe defense bar, the Justice Department, academia, and corporateconsulting firms; notably, no corporate employee or in-house counsel isa members of the group.

Sept. 2002: Section 805(a)(5) of Sarbanes-Oxley directs Sentencing Commission toamend Guidelines in wake of Enron scandals to ensure that they are"sufficient to deter and punish organizational criminal misconduct."

Jan. 20, 2003: Thompson Memo issued by DOJ reiterates Holder Memo criteria thatcooperation, compliance programs and remedial actions would be takeninto account in exercising prosecutorial decisions, including the waiverof attorney-client privilege.

Oct. 7, 2003: Ad Hoc Advisory Group on Organizational Sentencing released its finalreport to the Sentencing Commission recommending ways to improveinternal programs to "prevent and detect violations of law."

May 1, 2004: Commission issues revised Guidelines that require companies to have an"effective compliance and ethics program" to receive penalty mitigation. Program must promote an organizational culture that encourages ethicaland legal conduct.

Nov. 1, 2004 Revised Organizational Guidelines go into effect. To qualify for areduced sentenced, cooperation must be "timely and thorough,"including "disclosure of all pertinent information known by theorganization," namely, information otherwise protected by the attorney-client and work product privileges.

Jan. 12, 2005: United States v. Booker, 543 U.S. 220 (2005). Supreme Court strikesdown the mandatory feature of the Guidelines. Henceforth, theGuidelines, while they must be considered by the sentencing judge alongwith other sentencing factors, would only be advisory.

March 3, 2005: Letter submitted by coalition of business groups, including theWashington Legal Foundation, to Sentencing Commission urgingCommission to reverse or modify its privilege waiver amendment

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embodied in its Chapter Eight compliance program,

June 28, 2005: U.S. Sentencing Commission announces review of its waiver policy indetermining level of corporate cooperation and solicits public comments.

Aug. 15, 2005: ABA, business groups, and former DOJ officials led by former AttorneyGeneral Dick Thornburgh urges Sentencing Commission to reverse ormodify its waiver policy.

April 5, 2006: U.S. Sentencing Commission unanimously approves removal ofprivilege waiver language from guideline commentary. Revised policybecomes effective November 1, 2006.

June 21, 2007: Rita v. United States, 127 S. Ct. 2456 (2007). Court rules that sentencesimposed under advisory guidelines may be presumed to be reasonable bycourts of appeals, but that no such presumption is required. Sentencingjudges need not regard the Guidelines as presumptively reasonable.

Dec. 10, 2007: Gall v. United States, 128 S. Ct. 586 (2007). Court rules that districtcourt judges need not provide "extraordinary reasons" to justify asentence that substantially departs from a Guideline sentence.

PRIM

AR

Y O

FFEN

SEN

umber

PercentN

umber

Mean

Median

Num

berM

eanM

edianN

umber

Mean

Median

TO

TA

L196

100.062

$3,090,742$245,716

134$7,329,196

$131,500165

$7,113,565$180,250

Adm

inistration of Justice: Contem

pt/Obstruction/Perjury

10.5

1--

-- 1

-- --

1--

-- A

ntitrust7

3.61

-- --

7$86,023,571

$200,0007

$86,048,428$373,993

Archeological D

amage

00.0

0--

-- 0

-- --

0--

-- Public C

orruption: Bribery/G

ratuity/Extortion

63.1

3$264,135

$225,1496

$5,358,821$2,766,630

6$5,490,889

$2,949,705C

ivil/Individual Rights

00.0

0--

-- 0

-- --

0--

-- C

ontraband0

0.00

-- --

0--

-- 0

-- --

Copyright/T

rademark

42.0

0--

-- 4

$38,250$37,500

4$38,250

$37,500D

rugs15

7.70

-- --

3$19,333

$12,0003

$19,333$12,000

Environm

ental - Water

3216.3

7$13,041

$10,00030

$2,137,667$450,000

31$2,071,654

$400,000E

nvironmental - A

ir6

3.13

$2,033,333$2,000,000

5$2,065,200

$1,000,0005

$3,285,200$1,170,000

Environm

ental - Hazardous/T

oxic Pollutants1

0.51

-- --

1--

-- 1

-- --

Environm

ental - Wildlife

126.1

3$204,667

$60,0009

$61,790$50,000

10$117,011

$50,000Im

port and Export

115.6

1--

-- 8

$347,500$117,500

9$435,475

$133,000Firearm

s/Explosives/Public Safety

31.5

0--

-- 2

-- --

2--

-- Food, D

rugs, Agricultural &

Consum

er Products9

4.63

$6,844,559$8,245,369

8$854,938

$40,7508

$3,421,647$51,366

Food Stamps

00.0

0--

-- 0

-- --

0--

-- Forgery

00.0

0--

-- 0

-- --

0--

-- Fraud

6231.6

35$3,651,118

$332,68631

$8,019,382$180,250

58$6,489,482

$326,922G

ambling

00.0

0--

-- 0

-- --

0--

-- Im

migration/N

aturalization/Passports7

3.60

-- --

4$55,375

$60,0004

$55,375$60,000

Larceny/T

heft/Em

bezzlement

21.0

0--

-- 2

-- --

2--

-- M

otor Vehicles

00.0

0--

-- 0

-- --

0--

-- M

oney Laundering

73.6

0--

-- 3

$150,000$100,000

3$150,000

$100,000C

omm

ercial Sex Acts: Pornography/Prostitution

10.5

0--

-- 1

-- --

1--

-- R

acketeering1

0.51

-- --

1--

-- 1

-- --

Tax

42.0

2--

-- 3

$3,112,957$2,200,000

4$8,009,857

$3,569,436O

ther5

2.61

-- --

5$210,000

$100,0005

$230,000$100,000

1Of the 197 cases sentenced pursuant to C

hapter Eight, one was excluded due to m

issing information on type of econom

ic sanction for cases in which orders w

ere made. M

ean and median dollar values include only

cases with reported non-zero fine or restitution am

ounts. Note that the total colum

n includes cases with no fine or restitution. D

escriptions of variables used in this table are provided in Appendix A

.

2In cases of joint and several fines or restitution orders, the full amount of each fine or restitution order is attributed to each offender, w

hich may result in overinflation of the total am

ount of fines or restitution reported for all offenders.

SOU

RC

E: U.S. Sentencing C

omm

ission, 2007 Datafile, U

SSCFY

07.

CA

SES W

ITH

TO

TA

L FIN

E O

RC

ASE

S WIT

HT

OT

AL

RE

STIT

UT

ION

IMPO

SED

2FIN

E IM

POSE

DR

EST

ITU

TIO

N IM

POSE

D

BY

PRIM

AR

Y O

FFEN

SE C

AT

EG

OR

Y1

Table 52

ME

AN

AN

D M

ED

IAN

FINE

OR

RE

STIT

UT

ION

IMPO

SED

ON

SEN

TE

NC

ED

OR

GA

NIZ

AT

ION

S

Fiscal Year 2007

SENTENCING COMPONENTS

Disposition N % Guilty Plea 166 84.7

Nolo Contendere 1 0.5

Bench Trial 2 1.0

Trial By Jury 27 13.8

TOTAL 196 100.0

Probation Probation Ordered2 147 75.0

Probation Not Ordered 49 25.0

TOTAL 196 100.0

Court Ordered Compliance/Ethics Program Ordered 47 24.1

No Program Ordered 148 75.9

TOTAL 195 100.0

Inability to Pay Fine Reduced - Organization Unable to Pay3 61 33.0

Organization Able to Pay 124 67.0

TOTAL 185 100.0

1The total for each factor may add up to less than these overall totals due to missing information for that variable. A description of Chapter Eight culpability factors can be found in USSG §8C2.5. Descriptions of variables used in this table are provided in Appendix A.

2The “Probation Ordered” category consists of cases in which at least one month of probation was ordered. The “No Probation Ordered” category consists of cases in which less than one month of probation was ordered, or no probation was ordered.

3Cases in this category were unable to pay either a portion of the fine or the entire fine.

SOURCE: U.S. Sentencing Commission, 2007 Datafile, USSCFY07.

TOTAL

Table 53

CHAPTER EIGHT ORGANIZATIONAL SENTENCING COMPONENTS1

Fiscal Year 2007

Involvement in or Tolerance of Criminal Activity by Authority - §8C2.5(b) Number PercentInvolvement/tolerance in an organization/unit of 5,000+ employees 4 4.5Involvement/tolerance in an organization/unit of 1,000+ employees 4 4.5Involvement/tolerance in an organization/unit of 200+ employees 6 6.7Involvement/tolerance in an organization/unit of 50+ employees 18 20.2Involvement/tolerance in an organization/unit of ten or more employees 21 23.6No Involvement/tolerance OR fewer than ten employees 36 40.4TOTAL 89 100.0

Prior History - §8C2.5(c) Number PercentOne similar criminal/two similar administrative violations within ten years 0 0.0One similar criminal/two similar administrative violations within five years 1 1.1Organization had no prior record 88 98.9TOTAL 89 100.0

Violation of an Order - §8C2.5(d) Number PercentOrganization violated a judicial order or condition of probation for similar conduct 1 1.1Organization violated condition of probation 0 0.0Organization did not violate an order or probation 88 98.9TOTAL 89 100.0

Obstruction of Justice - §8C2.5(e) Number Percent5 5.6

Organization did not obstruct justice 84 94.4TOTAL 89 100.0

Effective Compliance and Ethics Program - §8C2.5(f) Number Percent1 1.1

Organization had no compliance program 88 98.9TOTAL 89 100.0

Self-Reporting, Cooperation, and Acceptance of Responsibility - §8C2.5(g) Number Percent4 4.5

Cooperated with investigation 40 44.924 27.0

Organization did not self-report, cooperate, or accept responsibility 21 23.6TOTAL 89 100.0

1Of the 197 cases sentenced pursuant to Chapter Eight, 90 had the fine guidelines applied. The remaining 107 cases had fine guidelines application data missing or inapplicable due to guideline provisions such as a “preliminary determination of inability to pay fine” (§8C2.2). The total for each factor may add up to less than the overall total due to missing information for that specific variable. A description of Chapter Eight culpability factors can be found in USSG §8C2.5. Descriptions of variables used in this table are provided in Appendix A.

SOURCE: U.S. Sentencing Commission, 2007 Datafile, USSCFY07.

Reported offense to governmental authorities

Accepted responsibility

Organization did have an effective compliance program

Table 54

ORGANIZATIONS SENTENCED UNDER CHAPTER EIGHT: CULPABILITY FACTORS1

Fiscal Year 2007

Organization obstructed justice

A P P E N D I X

A-1

WLF REFERENCE RESOURCES

Washington Legal FoundationLegal Studies Publications and Programs

Chapter One: Mens Rea, Public Welfare Offenses, and the Responsible Corporate Officer Doctrine

Publications:

“Honest Services” Criminal Claim Dealt Setback In Appeals Court By James B. Tucker and Amanda B. Barbour, members of the General Litigationgroup at Butler, Snow, O=Mara, Stevens, & Cannada PLLC in Jackson, Mississippi. COUNSEL=S ADVISORY, November 3, 2006, 1 page

Stewart Prosecution Imperils Business Civil Liberties By Warren L. Dennis, a partner, and Bruce Boyden, an associate in the Litigation andDispute Resolution Group at Proskauer Rose LLP’s Washington, D.C. office.

LEGAL BACKGROUNDER, October 3, 2003, 4 pages

Criminalizing Business Judgment Could Stagnate U.S. EconomyBy Bruce A. Hiler, partner at the firm O’Melveny & Myers LLP and head of the SECPractice Group, Ira H. Raphaelson, co-chair of the White Collar & Regulatory DefenseGroup and a partner at the firm, and Elizabeth H. Baird, counsel to the firm. LEGAL BACKGROUNDER, June 7, 2002, 4 pages

Officers And Directors: Liability Exposure Under Civil And Criminal LawBy Matthew J. Iverson, a partner with the Chicago law firm Litchfield Cavo, andStephen M. Kowal, a partner with the Chicago law firm Bell, Boyd & Lloyd. Forewordby Clayton K. Yeutter, Of Counsel to the Washington, D.C. law firm Hogan & HartsonLLP; Introduction by Rick Harrington, Senior Vice President and General Counsel ofConoco Inc.MONOGRAPH, June 1999, 90 pages

Environmental Enforcement Proposal Threatens Business Civil LibertiesBy Daniel M. Steinway and Thomas C. Jackson, partners with the Washington, D.C.office of Kelley Drye & Warren. LEGAL BACKGROUNDER, June 27, 1997, 4 pages

Strict Intent Standard In Environmental Cases Protects Civil LibertiesBy Thomas R. Bartman, a vice president with the Washington, D.C. law firm Shapiro,Lifschitz and Schram, and Kevin A. Gaynor, a partner with the Washington, D.C. officeof Vinson & Elkins L.L.P.

A-2

WORKING PAPER, June 1997, 15 pages

“Honest Services” Fraud: Expanding The Criminalization Of Corporate ConductBy Stephen W. Grafman, a partner in the Washington, D.C. office of Kirkpatrick &Lockhart. CONTEMPORARY LEGAL NOTE, December 1996, 13 pages

High Criminal Intent Standard Needed For Complex Environmental LawsBy Thomas R. Bartman, a vice president with the Washington, D.C. law firm Shapiro,Lifschitz and Schram.LEGAL BACKGROUNDER, September 15, 1995, 4 pages

What You Don’t Know Can’t Hurt You: Changing Definitions Of Willfulness InFederal Criminal LawBy Michael Chertoff, a litigation partner in the New York and New Jersey offices of thelaw firm of Latham & Watkins, and Felice Berkman, an associate at the law firm’s NewYork office.LEGAL BACKGROUNDER, October 21, 1994, 4 pages

Corporate Vicarious Criminal LiabilityBy the late William C. Hendricks, III and J. Sedwick Sollers, III, a partner with theWashington, D.C. office of the law firm King & Spalding.CONTEMPORARY LEGAL NOTE, April 1993, 10 pages

A Meaner Environment: Prosecutors Increase Use Of Strict Liability Doctrine ToTarget More Corporate ExecutivesBy Robert L. Hines, a partner with the San Francisco law firm Farella Braun & MartelLLP.LEGAL BACKGROUNDER, April 30, 1993, 4 pages

Programs:

Punish the Bad Apple, or the Whole Bunch?: Corporate Criminal LiabilityStandards & Tactics, and Theories for a Different Approach, June 28, 2007

•William B. Mateja, Principal, Fish & Richardson P.C.•Professor Craig S. Lerner, George Mason University School of Law

Expanding Duties & Liability: Corporate Directors in the Post-Enron LegalEnvironment, June 8, 2005

•Richard A. Spehr, Mayer, Brown, Rowe & Maw LLP•Steven Wolowitz, Mayer, Brown, Rowe & Maw LLP

Assessing Arthur Andersen v. U.S.: What Did the Court Rule and How Will ItImpact Criminal Enforcement?, June 9, 2005

•Gary Grindler, King & Spalding LLP

A-3

•Robert N. Weiner, Arnold & Porter LLP•Ronald W. Peppe II, Association of Corporate Counsel

Arthur Andersen v. United States: Will the Supreme Court Issue Reasonable Limitson White Collar Prosecutions?, April 14, 2005

$James Dabney Miller, King & Spalding LLP$Gary Grindler, King & Spalding LLP

Arthur Andersen v. United States: Will the Supreme Court Expand theCriminalization of Business Practices?, April 21, 2005

$Mark T. Calloway, Alston & Bird LLP$William B. Mateja, Fish & Richardson P.C.$Robert N. Weiner, Arnold & Porter LLP

Is “Creative” Enforcement of White Collar Criminal Laws in the Public Interest?,January 29, 2003

$Lanny Breuer, Covington & Burling$David Laing, Baker & McKenzie $Ira Raphaelson, O=Melveny & Myers LLP

The Criminalization of Corporate Governance?: Enron, Andersen, and Beyond, April9, 2002

$The Honorable Dick Thornburgh, Kirkpatrick & Lockhart, LLP (moderator)$Professor Larry E. Ribstein, George Mason University School of Law$Christian J. Mixter, Morgan Lewis$Robert J. Bittman, White & Case

Chapter Two: EPA Criminal Enforcement Policies

Publications:

EPA Should Adopt WLF Proposal To Protect Inspection Targets’ RightsBy Carol E. Dinkins, a partner in the Houston office of Vinson & Elkins, where she isco-chair of the law firm’s administrative and environmental law practice. COUNSEL’S ADVISORY, July 27, 2001, 1 page

Environmental Warrantless Searches: Closely Watched Trains?By James N. Christman, a partner, and Dan J. Jordanger, an associate with theRichmond law firm of Hunton & Williams.LEGAL BACKGROUNDER, December 1, 1995, 4 pages

A-4

When Do Warrantless Environmental Searches Violate Business’ Civil Liberties?By Harry E. Grant, Jr., a partner, and Craighton E. Goeppele, a former associate, atthe Seattle law firm of Riddell, Williams, Bullitt & Walkinshaw. LEGAL BACKGROUNDER, May 14, 1993, 4 pages

High Court Should Review Environmental Crimes RulingBy Thomas C. Jackson, a partner in the Washington, D.C. law firm Kelley, Drye &Warren.LEGAL OPINION LETTER, May 24, 2002, 2 pages

Prosecutors And Courts Expand Criminalization Of Environmental LawBy Joe D. Whitley and Douglas S. Arnold, partners with the Atlanta law firm Alston &Bird.LEGAL BACKGROUNDER, May 4, 2001, 4 pages

Supreme Court Asked To Review Key “Environmental Crimes” CaseBy Bradley J. Daves, an attorney in the Washington, D.C. office of the law firmMcGuire, Woods LLP.COUNSEL’S ADVISORY, September 17, 1999, 2 pages

Court Reduces Government’s Burden In Proving “Environmental Crimes”By Robert E. Sims and Joshua A. Bloom, partners in the San Francisco office of thelaw firm Bingham McCutchen.LEGAL OPINION LETTER, September 17, 1999, 2 pages

Environmental Violations Disclosure May Forestall Criminal ProsecutionBy William D. Wick, partner at Wacker & Wick, L.L.P.LEGAL OPINION LETTER, May 15, 1998, 2 pages

Abuse Of Environmental Prosecutions Undermines Trust In GovernmentBy Keith A. Onsdorff, a partner in the Philadelphia office of the law firm Reed SmithCrosby Heafey.LEGAL OPINION LETTER, July 12, 1996, 2 pages

High Criminal Intent Standard Needed For Complex Environmental LawsBy Thomas R. Bartman, a vice president with the Washington, D.C. law firm Shapiro,Lifschitz and Schram.LEGAL BACKGROUNDER, September 15, 1995, 4 pages

Supreme Court Should Review Environmental Crimes CaseBy Jerome C. Roth, a partner with the San Francisco office of the law firm Munger,Tolles & Olson, specializing in white collar criminal defense.LEGAL OPINION LETTER, December 16, 1994, 2 pages

A-5

Beware Environmental Defendants: Failure To Understand Title 18 Can Get You20By Barry M. Hartman and Stephen W. Grafman, partners in the Washington, D.C.office of the law firm Kirkpatrick & Lockhart.LEGAL BACKGROUNDER, July 1, 1994, 4 pages

Mandatory And Discretionary Debarment For Environmental CrimesBy George J. Terwilliger, III, a partner in the Washington, D.C. law firm White & Caseand former Deputy Attorney General of the United States, and Jed L. Babbin, a partnerin the Washington, D.C. office of the law firm O’Connor & Hannan.CONTEMPORARY LEGAL NOTE, January 1994, 42 pages

Ninth Circuit Decision Expanding Environmental Criminal Liability Should BeOverturnedBy R. Christopher Locke, a partner at the San Francisco law firm of Farella Braun &Martel LLP, and David P. Bancroft, a partner at the San Francisco law firm of Sideman& Bancroft. LEGAL OPINION LETTER, November 19, 1993, 2 pages

EPA Should Reward Corporate Compliance Without Damaging Civil Liberties AndCooperationBy Lynn L. Bergeson, a partner with the Washington, D.C. law firm Bergeson &Campbell.LEGAL BACKGROUNDER, July 9, 1993, 4 pages

Criminalizing Environmental Law: Can America Afford Jailing HonestBusinessmen?By Keith A. Onsdorff, a partner in the Philadelphia office of the law firm Reed SmithCrosby Heafey, and James M. Mesnard, an associate with the Washington, D.C. officeof the law firm Seyfarth, Shaw, Fairweather & Geraldson.LEGAL BACKGROUNDER, July 10, 1992, 4 pages

Environmental Violations: What You Should Know About Avoiding CriminalSanctions By Carol E. Dinkins, a partner with the Houston office of Vinson & Elkins. LEGAL BACKGROUNDER, November 15, 1991, 4 pages

Programs:

Pursuing Environmental Crimes: The Role of the U.S. Department of Justice, May 15,2002

$The Honorable Thomas L. Sansonetti, U.S. Department of Justice$Michael J. Penders, Environmental Protection International$Barry Hartman, Kirkpatrick & Lockhart LLP

A-6

Criminalizing Environmental Law: Does Expanded Enforcement Serve the PublicInterest?, June 6, 2001

$The Honorable Dick Thornburgh, Kirkpatrick & Lockhart LLP (moderator)$Carol E. Dinkins, Vinson & Elkins$Joe D. Whitley, Alston & Bird$Professor Jonathan Turley, George Washington School of Law

What to Expect from the New Environmental Enforcers, February 13, 2001•Paul G. Wallach, Hale & Dorr$Robert M. Sussman, Latham & Watkins$Robert Roberts, Environmental Council of the States

Chapter 3: DOJ Criminal Prosecution Policies

Publications:

White Collar Crime Policy On Legal Fee Payment Implicates Civil LibertiesBy Kevin P. Allen, a partner with the law firm Thorp Reed & Armstrong, LLP in itsPittsburgh office.LEGAL BACKGROUNDER, June 8, 2007, 4 pages

DOJ Prosecution Guidance Impacts Health Care BusinessesBy Karen Owen Dunlop, a partner in the Chicago office of the law firm Sidley AustinBrown & Wood LLP.LEGAL OPINION LETTER, August 26, 2005, 2 pages

Strategic Responses To Government’s Use Of Search WarrantsBy Jay B. Stephens, , Senior Vice President of Raytheon Company and formerAssociate Attorney General of the United States, and James A. Meade, formerly anassociate in the Washington, D.C. office of the law firm Pillsbury Winthrop.LEGAL BACKGROUNDER, January 19, 1996, 4 pages

DOJ Reaffirms And Expands Aggressive Corporate Cooperation GuidelinesBy Richard Ben-Veniste and Lee H. Rubin, partners in the Washington, D.C. office ofthe law firm Mayer, Brown, Rowe & Maw LLP, specializing in white collar defense andcorporate investigations.LEGAL BACKGROUNDER, April 4, 2003, 4 pages

The Case For Reevaluating DOJ Policies On Prosecuting White Collar CrimeBy Joe D. Whitley, a partner with the Atlanta law firm Alston & Bird LLP, Marc N.Garber, Of Counsel to the firm, and Mark A. McCarty and Steven D. Henry,associates with the firm.WORKING PAPER, May 2002, 40 pages

A-7

Justice Department Should Study Criminalization Of Business ConductBy The Honorable Richard Thornburgh, Counsel to the law firm Kirkpatrick &Lockhart LLP and Chairman of WLF’s Legal Policy Advisory Board, who previouslyserved as Under-Secretary-General of the United Nations, U.S. Attorney General, andGovernor of Pennsylvania.COUNSEL’S ADVISORY, September 21, 2001, 1 page

Outside Interests Pressure Prosecutors To Criminalize Free EnterpriseBy Ira H. Raphaelson, a partner in the Washington D.C. office of O’Melveny & Myers,and Christopher G. Janney, a partner with the Washington, D.C. office of the law firmSonnenschein, Nath & Rosenthal.LEGAL BACKGROUNDER, November 10, 1995, 4 pages

Fairness In White Collar Crime Cases: Prosecutors Should Faithfully Follow ThePrinciples Of Federal ProsecutionBy Larry D. Thompson, a partner with King & Spalding.LEGAL BACKGROUNDER, June 19, 1992, 4 pages

Programs:

U.S. v. Stein and its Ripple Effects: Are Judges & Legislators Turning the Tide forLiberties in White Collar Enforcement?, August 16, 2007

•E. Lawrence Barcella, Jr., Paul, Hastings, Janofsky & Walker LLP•Stephanie A. Martz, National Association of Criminal Defense Lawyers

Chapter 4: Parallel Civil and Criminal Prosecutions

Judge Upholds Rights For Targets Of Parallel Civil And Criminal Prosecutions By Robert J. Ridge, a partner in the Pittsburgh law firm Thorpe, Reed & ArmstrongLLP. LEGAL BACKGROUNDER, August 10, 2007, 4 pages

Maintaining Grand Jury Witnesses’ Secrecy Privilege In Parallel Civil Litigation By the late William C. Hendricks, III and Michael R. Pauzé, a former attorney withKing & Spalding who is currently a trial attorney at the Department of Justice.CONTEMPORARY LEGAL NOTE, May 2000, 40 pages

Will Supreme Court Decision Increase Parallel Prosecutions?By Ira H. Raphaelson, a partner with the Washington, D.C. office of the law firmO’Melveny & Myers LLP, and James G. Richmond, a partner with the Chicago lawfirm Ungaretti & Harris.LEGAL BACKGROUNDER, January 23, 1998, 4 pages

A-8

Chapter 5: Attorney-Client and Work Product Privileges

Publications:

Culture Of Privilege Waiver Compromises Corporate ComplianceBy Paul Clinton Harris, Sr., a partner in the law firm of Shook, Hardy & Bacon, L.L.P. LEGAL BACKGROUNDER, May 11, 2007, 4 pages

The “McNulty Memo”: A Missed Opportunity To Reverse Erosion Of Attorney-Client PrivilegeBy Richard Ben-Veniste and Raj De, a senior partner and associate, respectively, withthe law firm Mayer, Brown, Rowe & Maw LLP. Mr. Ben-Veniste formerly served asChief of the Special Prosecutions Section of the U.S. Attorney’s Office for the SouthernDistrict of New York, as Chief of the Watergate Task Force of the Watergate SpecialProsecutor’s Office, and as Chief Minority Counsel to the Senate WhitewaterCommittee.LEGAL BACKGROUNDER, January 19, 2007, 4 pages

Waiver Of The Attorney-Client Privilege: A Balanced ApproachBy The Honorable Dick Thornburgh, Of Counsel to the law firm Kirkpatrick &Lockhart Preston Gates Ellis LLP. Foreword by The Honorable John Engler, Presidentand CEO of the National Association of Manufacturers. Introduction by Laura Stein,Senior Vice President - General Counsel and Secretary, The Clorox Company.MONOGRAPH, July 2006, 90 pages

Risks And Rewards of Waiving The Attorney-Client PrivilegeBy Joel B. Harris, a partner, and Andrew I. Stemmer, a former associate, in theLitigation and Dispute Resolution Department of the law firm Thacher Proffitt & WoodLLP.LEGAL BACKGROUNDER, July 7, 2006, 4 pages

Attorney-Client Privilege & Employee Interviews In Internal InvestigationsBy Paul B. Murphy, a partner with King & Spalding LLP=s Special Matters andGovernment Investigations Group who previously served as the United States Attorneyfor the Southern District of Georgia, and Lucian E. Dervan, an associate with King &Spalding=s Special Matters and Government Investigations Group.CONTEMPORARY LEGAL NOTE, March 2006, 16 pages

Federal Privilege Waiver Demands Impact Corporate ComplianceBy Richard Ben-Veniste, a senior partner in the Washington, D.C. office of the law firmMayer, Brown, Rowe & Maw LLP, specializing in white collar defense and civillitigation and Raj De, an associate with the firm.LEGAL BACKGROUNDER, February 24, 2006, 4 pages

A-9

The Attorney-Client Privilege: A Casualty Of Post-Enron EnforcementBy John M. Callagy, a partner with, and Chairman of, the New York law firm KelleyDrye & Warren LLP.LEGAL BACKGROUNDER, October 29, 2004, 4 pages

DOJ Reaffirms And Expands Aggressive Corporate Cooperation GuidelinesBy Richard Ben-Veniste and Lee H. Rubin, partners in the Washington, D.C. office ofthe law firm Mayer, Brown, Rowe & Maw LLP, specializing in white collar defense andcorporate investigations.LEGAL BACKGROUNDER, April 4, 2003, 4 pages

DOJ Must Address White Collar Prosecutors’ Disrespect For PrivilegedCommunicationsBy Judson W. Starr, a partner, and Brian L. Flack, an associate, in the Washington,D.C. office of the law firm Venable LLP.LEGAL BACKGROUNDER, February 23, 2001, 4 pages

DOJ Prosecution Guidance Threatens Privileged CommunicationsBy Robert V. Pambianco, an attorney with the Washington, D.C. office of KilpatrickStockton.COUNSEL’S ADVISORY, October, 6, 2000, 1 page

Attorney-Client Privilege Under Attack In Health Care Fraud CasesBy Jody Manier Kris, Counsel to the Washington, D.C. law firm Wilmer, Cutler &Pickering.LEGAL BACKGROUNDER, January 7, 2000, 4 pages

Attorney-Client Privilege And “Crime-Fraud” Exception: The Erosion Of BusinessPrivacyBy The Honorable Richard Thornburgh, Counsel to the law firm Kirkpatrick &Lockhart LLP and Chairman of WLF’s Legal Policy Advisory Board, who previouslyserved as Under-Secretary-General of the United Nations, U.S. Attorney General, andGovernor of Pennsylvania. Foreword by Stephen L. Hammerman, Vice Chairman ofthe Board and General Counsel, Merrill Lynch & Co., Inc.; Introduction by Lawrence A.Salibra, II, Senior Counsel, Alcan Aluminum Corporation. MONOGRAPH, September 1999, 70 pages

Court’s Denial Of Privilege Undermines Corporate ComplianceBy Joseph E. Murphy, Executive Vice President of Compliance Systems Legal Groupin Haddonfield, New Jersey.LEGAL BACKGROUNDER, May 15, 1998, 4 pages

Plaintiffs Seek To Pierce The Attorney-Client PrivilegeBy Benjamin B. Klubes, a senior associate, and Roberto Iraola, counsel, both with theLitigation Group of Skadden, Arps, Slate, Meagher & Flom in Washington, D.C.

A-10

LEGAL BACKGROUNDER, December 5, 1997, 4 pages

Programs:

DOJ Corporate Crime Policies: Will the “McNulty Memo” Adequately Protect CivilLiberties?, January 17, 2007

•The Honorable Dick Thornburgh, Of Counsel, Kirkpatrick & LockhartPrestonGates Ellis LLP•Roscoe C. Howard, Jr, Partner, Troutman Sanders LLP•Stephanie A. Martz, Director, National Association of Criminal DefenseLawyers (NACDL)

Chapter Six: Deferred Prosecution and Non-Prosecution Agreements

Publications:

Deferred Prosecution Agreements: What Is The Cost Of Staying In Business?By Michael R. Sklaire, a former Assistant United States Attorney, who is a partner inthe litigation section of the law firm Williams Mullen P.C.; and Joshua G. Berman, aformer Assistant United States Attorney in the Southern District of New York and TrialAttorney with the Department of Justice, who is a partner with the Washington, D.C.office of Sonnenschein Nath & Rosenthal.LEGAL OPINION LETTER, June 3, 2005, 2 pages

Programs:

Deferred Prosecution Agreements: A View from the Trenches and a Proposal for Reform, September 6, 2007

•F. Joseph Warin, Gibson, Dunn & Crutcher LLP•Andrew S. Boutros, Gibson, Dunn & Crutcher LLP

Deferred Prosecution Agreements: Promises and Pitfalls for Businesses Under theFederal Microscope, May 24, 2005

•William B. Mateja, Fish & Richardson P.C.•Michael R. Sklaire, Womble Carlyle LLP

A-11

Chapter 7: U.S. Sentencing Guidelines

Publications:

U.S. v. Kandirakis: A Bellwether Ruling On Sentencing Guidelines? By Brian M. Heberlig and Amy Lester, a partner in the New York office and anassociate in the Washington, D.C. office, respectively, at the firm Steptoe & JohnsonLLP. LEGAL OPINION LETTER, November 3, 2006, 2 pages

Federal Circuit Courts Send Mixed Messages On Sentencing By James Flanagan, a second year law student at the Catholic University of AmericaColumbus School of Law and a law clerk to Washington Legal Foundation’s LegalStudies Division.LEGAL OPINION LETTER, September 22, 2006, 2 pages

Avoiding Disparities Between Sentences Of Co-Defendants Is A LegitimateSentencing GoalBy Brian M. Heberlig, a partner in the Washington, D.C. office of Steptoe & JohnsonLLP, and a member of the defense team in United States v. Ebbers.LEGAL OPINION LETTER, April 7, 2006, 2 pages

Future Of The “Feeney Amendment”After High Court=s Sentencing RulingsBy Shannon Thyme Klinger, formerly a partner in the Washington, D.C. office ofAlston & Bird LLP and William Sinclair, an associate in the Atlanta office of Alston &Bird LLP. LEGAL BACKGROUNDER, February 11, 2005, 4 pages

Comments Due On Possible Revisions To Corporate Sentencing GuidelinesBy Barry Hartman, a partner in the Washington, D.C. office of the law firm Kirkpatrick& Lockhart LLP. COUNSEL’S ADVISORY, May 10, 2002, 1 page

Proposed Environmental Guidelines Would Require Courts To Impose MaximumFines On BusinessBy Benjamin S. Sharp, a partner in the Washington, D.C. office of Perkins Coie LLP.COUNSEL’S ADVISORY, December 10, 1993, 1 page

Newly Proposed Guidelines Require Immediate Response From CorporateCommunityBy Irvin B. Nathan, a senior litigating partner with the Washington, D.C. law firmArnold & Porter LLP. COUNSEL’S ADVISORY, March 19, 1993, 1 page

A-12

Developing Compliance Programs Under The U.S. Corporate Sentencing GuidelinesBy Alan R. Yuspeh, Corporate Ethics Officer for Columbia/HCA HealthcareCorporation, and W. Neil Eggleston, a partner with the Washington, D.C. law firm ofHowrey Simon Arnold & White L.L.P.CONTEMPORARY LEGAL NOTE, July 1992, 10 pages

Understanding And Complying With The U.S. Corporate Sentencing GuidelinesBy Irvin B. Nathan and Arthur N. Levine, who is a partner with the Washington, D.C.law firm Arnold & Porter LLP.CONTEMPORARY LEGAL NOTE, May 1992, 10 pages

New Corporate Sentencing Guidelines Are Vulnerable To Constitutional AndStatutory Non-Compliance ChallengesBy Joseph R. Creighton, President of J.R.C.C. Associates.LEGAL BACKGROUNDER, March 6, 1992, 4 pages

New Corporate Sentencing Guidelines May Be Unconstitutional And Should BeChallenged By Paul D. Kamenar, WLF’s Executive Legal Director.LEGAL OPINION LETTER, October 25, 1991, 2 pages

Can Corporations Learn To Live With The New Sentencing Guidelines?By Robert J. Giuffra, Jr., a partner with the New York law firm Sullivan & Cromwell. LEGAL BACKGROUNDER, June 7, 1991, 4 pages

What Corporations Need To Know About The Proposed Sentencing GuidelinesBy Robert J. Giuffra, Jr., a partner with the New York law firm Sullivan & Cromwell.LEGAL BACKGROUNDER, January 4, 1991, 4 pages

Programs:

A "Reasonable" Reaction?: Judicial Review of Criminal Sentences After Booker v.

U.S., October 19, 2006•Ronald J. Tenpas, Associate Deputy Attorney General, U.S. Department ofJustice•Carmen Hernandez, President-Elect, National Association of Criminal DefenseLawyers

The Future of Federal Sentencing: AReasonable@ Judicial Discretion orCongressional Intervention?, February 25, 2005

•The Honorable Mary Beth Buchanan, U.S. Department of Justice•Carmen Hernandez, National Association of Criminal Defense Lawyers•Professor Jeffrey S. Parker, George Mason University School of Law

A-13

Federal Sentencing In Flux: The Impact of Blakely on White Collar CriminalEnforcement, August 4, 2004

•Roscoe C. Howard, Jr., Shepperd, Mullin, Richter & Hampton LLP•Ronald H. Weich, Zuckerman Spaeder LLP•David C. Frederick, Kellogg, Huber, Hansen, Todd & Evans, P.L.L.C.

Other Related Topics

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WASHINGTON LEGAL FOUNDATION

The Washington Legal Foundation was established in 1977 as a unique, third partyadvocate which litigates, publishes, and conducts educational advertising campaigns in supportof free enterprise. As a nonpartisan, public interest law institution, WLF devotes a substantialportion of its resources to defending individual rights, challenging regulations which impedeeconomic security, and working with our friends in government and the legal system to maintainbalance in the courts and help strengthen America’s free enterprise system.

Serving as a public interest law firm, WLF brings original lawsuits, files amicus briefs,intervenes in court cases, and petitions agencies for rulings. Since our founding over 30 yearsago, WLF has litigated more than 1,080 court cases, participated in over 745 administrative andregulatory proceedings, initiated 138 judicial misconduct investigations, and filed more than 165attorney and judicial reform actions and petitions.

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