Executives Face Perils When Confessing to DOJ as Companies Gain

The Justice Department’s elevated incentives to entice corporations into disclosing internal wrongdoing is illuminating ambiguity when executives want to step forward.

Exposing their company’s potential offenses to law enforcement has long been risky for those with criminal exposure. Whether trying to get in front of an investigation or experiencing genuine remorse, their chances of avoiding prison vary by prosecutor, district, and judge.

The absence of a road map is more evident when contrasted with new Justice Department policies, some defense attorneys say. DOJ’s Criminal Division and US attorney offices announced guidelines this year to encourage self-disclosures by offering greater transparency and leniency. But the carrot applies only when corporations come clean, not their employees.

That’s left white-collar defense lawyers struggling to offer confident advice to people interested in fessing up and implicating others, in exchange for a generous deal.

“Right now, we are all really at a loss for what to say,” said Alison Anderson, a white-collar defense partner at Boies Schiller and former supervisor in DOJ’s criminal fraud section.

‘Best Evidence’

The department’s policies on how companies can avoid prosecution and earn steep penalty discounts by cooperating early and fully aren’t just unavailable to individuals. They’re designed to encourage their employers to produce evidence against them.

Defense attorneys say they understand the department’s crime-deterrence rationale in pursuing individual charges rather than indicting companies who can’t be jailed. But they also point to the merits of a formalized path to leniency for executives who self-report. Individuals can unlock blockbuster cases, such as by wearing wires and providing insider accounts that are critical in prosecuting higher-up wrongdoers.

“That’s a fantastic opportunity for the authorities to take proactive measures” which can lead to “the best evidence,” said Christopher Cestaro, formerly DOJ’s chief Foreign Corrupt Practices Act prosecutor and now a partner at WilmerHale.

Cestaro is among several attorneys who said they doubt the department will adopt a parallel policy to entice individuals.

“DOJ is going to have to wrestle with that at some point, if they really want to get people self-disclosing corporate crimes that they would otherwise not learn about,” Anderson said.

Risky Negotiations

DOJ does have a history within certain offices of rewarding cooperating executives with non-prosecution agreements or recommending little to no prison time for those pleading guilty.

A department spokesman pointed to prosecutors’ consideration of a variety of published procedures on how individual cooperators can receive reduced sentences or immunity, such as US sentencing guidelines, principles of federal prosecution, and the Antitrust Division’s leniency program.

However, there are countless ways cooperation can backfire.

“You’re jumping off a cliff, hoping that there’s a net,” said Joel Cohen, a partner at White & Case and former federal prosecutor. “Based on experience, you kind of know where the net is, but you really have to explain very carefully to your client that it’s a risky strategy.”

It could be especially dangerous when approaching the government “out of the clear blue sky and saying, ‘Hey, I’ve got this client, they might have some criminal exposure, do you want to talk?’” said Sarah Hall, a former fraud section attorney who’s now a partner at Epstein Becker & Green.

“You have to give DOJ enough to interest them,” she added. But at the same time, “you might have just revealed enough for them to go off on their own and investigate your client.”

An experienced defense lawyer can mitigate that risk by engaging the right prosecutor. Among the standard tactics, attorneys say, are to initially dangle the client’s general, non-identifying information as a hypothetical. This helps gauge interest and the likelihood of immunity.

A good prosecutor wouldn’t make guarantees, but if they’re keen to talk, they can set up a proffer meeting in which the client has limited immunity in telling their story. That’s where things can easily go off the rails.

During the negotiation, the defense attorney may say, “‘My guy or gal can make this whole case rock solid for you. We want full immunity,’” said Zachary Terwilliger, a former US attorney who’s now a partner at Vinson & Elkins.

But the prosecutors can easily reject them, such as by saying, “‘If your person wants to cooperate, that’s fine, but we’ve got enough without them,’” Terwilliger said. “Then you really are sort of scratching your head.”

Or, the individual could reach a tentative leniency deal, only to see prosecutors rip it up if they later catch the cooperator in a lie, attorneys said.

And those who get prosecutors to recommend no prison time are still subject to the whims of a judge.

No Policy Coming

Clearer rules would make the process much more navigable for the defense bar, even as some lawyers acknowledge the department has good reasons to keep discretion.

Others disagree with the notion that the department’s emphasis on corporate self-disclosures is incompatible with the uncertainty for individuals.

“I think that the department is comfortable with how it has historically handled culpable individuals who report misconduct,” said Laura Perkins, who was previously a fraud section assistant chief who co-chairs the anti-corruption and internal investigations group at Hughes Hubbard & Reed. “I’d be surprised if there were some new policies on that where DOJ was really trying to promote that sort of admission, and tie their hands on it.”

In spite of DOJ’s effort to up the benefits, companies are wary of voluntarily disclosing.

Those counseling individuals on whether to take that same leap of faith would still welcome comparable guidelines, even if they offered only marginally more precision.

Until then, Cohen still offers the cliff analogy when explaining the dangers to individual clients.

“The problem is,” he said, “not jumping off the cliff might also be horrible.”