February 5, 2003

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Hide and seek
How the Justice Department keeps white-collar criminal deals secret.

By Russell Mokhiber and Robert Weissman

FOR CORPORATIONS, reputation is everything.

If they lose it, they stand to lose everything.

See Andersen, Worldcom, and Enron.

If they can keep their dirty laundry out of the public eye, all the better.

They do this by destroying incriminating documents, by lying, by covering up.

If they are caught red-handed by the cops, there's another way: plead guilty or negotiate a deferred-prosecution agreement and ask the government not to publicize the agreement.

We've always suspected these kinds of secret-settlement side deals are happening but never could put our finger on it.

Until earlier this week, when we attended a "media nosh" at the Washington Legal Foundation.

That's the group that takes out ads in the New York Times ripping into the Justice Department for prosecuting corporate criminals.

The title of the session: "Is Creative Enforcement of White Collar Criminal Laws in the Public Interest?"

The message the corporate-funded think tank wanted to get out, as one paper put it: "Criminalizing business judgment could stagnate the U.S. economy."

In the question-and-answer session, we asked the distinguished panel of white collar-crime defense lawyers whether they could name a recent criminal prosecution of a corporation that should not have been brought because the theory of enforcement was too "creative."

Ira Raphaelson, a former federal prosecutor and now a white-collar defense attorney at O'Melveny and Myers, said he had one but couldn't talk about it.

"What do you mean you can't talk about it?"

"I promised my client that I won't talk about it," he said.

"It was a criminal prosecution and it's on the public record, right?"

"Yes, but I'm not going to tell you any more about it."

"Was the case settled?"

"Yes," he said.

"Did the Justice Department notify the press that the case was settled?"

"No," he said. "The company completed the negotiations. A lot of money was paid. I could tell you about the case, but it would be to the detriment of my client, so I won't."

Raphaelson said the case involved a corporation charged with crimes under the collective-knowledge doctrine. That's a doctrine that holds that a corporation can be held criminally liable for the collective knowledge of its employees – even though no one individual has sufficient knowledge for that individual to be held culpable.

Raphaelson said use of the collective-knowledge doctrine is on the increase.

"And that's a bad thing," he said.

So, it's a good thing that the Justice Department didn't publicize the case, because it would make the department look bad.

Raphaelson said there have always been these kinds of "side deals" between the government and defense attorneys not to publicize a case.

"There are settled criminal cases that the government and the defense attorneys agree not to talk about in public," he said. "There always have been these side deals. If there is a prosecution that is a bad prosecution that is settled, and I have a side deal with the prosecutors not to talk about the prosecution, I'm not going to talk about it. In my case, the government put out no press release. There was no publicity to the case."

Lanny Breuer, the former special counsel to President Clinton and currently a partner at Covington and Burling, agreed with Raphaelson that such a secret settlement practice exists.

"There is this kind of practice of keeping information about criminal cases out of the press," Breuer said.

Breuer said he's seeing it increasingly with deferred-prosecution agreements. That's where the government will tell a defendant, "If you are a good boy for a year, the charges will be dropped. The criminal slate will be wiped clean."

The U.S. Attorney's manual says a major objective of deferred prosecutions – also known as pretrial diversion – is to "save prosecutive and judicial resources for concentration on major cases."

Deferred-prosecution agreements were never intended for serious corporate-crime cases. But that's where they are increasingly being applied.

"Hardly anybody knows about them," Breuer said. "In fact, these are settled very quietly. Lawyers find out through the rumor mill about these settled cases that have no publicity; they'll be tipped off to it, and they'll start digging in the court records to try and find them."

Breuer said a defense attorney "will go into the Department of Justice and say, 'OK, we can't prevent you from giving this to the press, but we are going to say nothing, and we're hopeful that you will say nothing.' "

And often they don't.

Justice Department spokesperson Bryan Sierra confirmed the department doesn't always put out a press release announcing a criminal settlement – even with a major corporation.

Sierra, who called our line of questioning "relatively stupid," said, "We decide when to make public announcements," and, "Reporters like yourself have to check with court documents."

If a defense attorney and a prosecutor have an agreement not to publicize the case, will the press office at the Justice Department take that into account?

"That may be one of the things that is weighed in determining whether or not a press release is issued," Sierra said.

Is it appropriate for a federal prosecutor to negotiate whether or not a press release is issued?

"I'm not going to comment on that," Sierra said.

Sierra did admit that "there is a policy to publicize major corporate-crime cases – but not every case."

How do you determine which major cases get a press release and which don't?

This is where Sierra got upset with our "stupid questions."

In fact, Mr. Sierra, the public has a right to know about criminal prosecutions of major corporations.

Sunlight is the best disinfectant.

It's a criminal charge.

Major corporations are being charged.

Let the sun shine in.

Let the public decide.

Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime Reporter. Robert Weissman is editor of the Washington, D.C.-based Multinational Monitor (www.multinationalmonitor.org). They are coauthors of Corporate Predators: The Hunt for MegaProfits and the Attack on Democracy (Common Courage Press, www.corporatepredators.org).