University of Miami Law Review

\\jciprod01\productn\m\mia\66-2\mia208.txt unknown Seq: 1 4-JAN-12 11:18 University of Miami Law Review VOLUME 66 WINTER 2012 NUMBER 2 KEYNOTE ADDRESS ROBERT S. BENNETT* Thank you, Dean, for that overly generous introduction. I am indeed flattered to be here. This is a very prestigious law school. And your law review is well known throughout the country. I very often look for law review articles in it, and tell my associates to read it and tell me what s there. What I want to do, as suggested by the Dean, is to give you a firsthand account of what I see as the dramatic changes in corporate law. When I was a federal prosecutor in Washington in the late sixties, there was very little, almost no, corporate prosecutions in Washington. And there were very few throughout the country maybe the Southern District of New York had a few but there really wasn t much. When law enforcement came across what could be corporate wrongdoing, there was generally a tendency to just refer it to the regulatory agencies. And so you have SEC fraud or health-care fraud, which are, as you hear from this conference, right at the top now. They tended to just say, We ll let the SEC handle it or Let s let some other regulatory agency handle it. And that went on for many many years. There were exceptions, I can only talk in broad terms, but there were exceptions to that. But then, starting in the seventies, early seventies, mid-seventies, I could see a change starting to occur. There was a tremendous amount of press about how unfair it was to put a young, poor kid in jail for stealing from the grocery store but letting bankers and corporate executives get away. People took to heart that great line from the famous bank robber Willie Sutton who said, You guys, referring to lawyers and corporate executives, steal more with your pens than I do with my gun. He s * Robert S. Bennett is a partner in Hogan Lovells Washington, D.C. and New York offices and is a member of the Investigations, White Collar and Fraud practice group. Bob is renowned in his field as an exceptional trial lawyer who has handled numerous high-profile cases and has represented corporations and individuals, including directors and officers, in criminal, civil, SEC enforcement, and congressional matters for the past 35 years. 313

\\jciprod01\productn\m\mia\66-2\mia208.txt unknown Seq: 2 4-JAN-12 11:18 314 UNIVERSITY OF MIAMI LAW REVIEW [Vol. 66:313 also known for saying that the reason he robbed banks was because that was where the money was. And I could see a change coming about. In fact, when I left the United States Attorneys Office in seventy-one or two, I saw corporate liability, corporate criminal prosecutions, as something in the future. Now even I did not dream that it would be like it is today. I mean, the trade manual that I read is the Wall Street Journal. There is more in the Wall Street Journal every day about corporate crime than there is in any other document. But in the beginnings, it was sort of a vicarious liability situation taken to the nth degree. Namely, if an employee did something wrong, even if it was against company policy, the government was very ready to hold the company liable under the doctrines of corporate criminal liability. Now, if the employee at the lunch hour went out and robbed the local bank, that wouldn t be the case. But if the employee took bribes for hiring suppliers for the company, even though that was against company policy, they would still hold the company liable. Again, generally, that was the case. I can think of many times when I would go into the government and I would say, Look, this is a great company. It has good policies. Few at that time had compliance programs, so I d say it has a good compliance program. And by the way you re going to cause a lot of harm to a lot of innocent people if you indict the company. The usual response I would get was, Bob, those are great arguments, but make those arguments before the sentencing judge. They did not view those arguments as really being relevant to the prosecutorial decision. And so it was for many years, and it was a boom to my practice because, in those days big law firms, like the one I m with now, didn t have white-collar lawyers. It wasn t until they saw how much money there was in white-collar crime, I suppose, on both sides of the issue. They didn t like that kind of practice. So I had a boutique and we were getting all these referrals from the big firms. Now, you can t find a big firm in the country that has not hired a former federal prosecutor or a U.S. Attorney or a Justice Department person because they want to be full service firms to their clients. What was a big boom to me, if you remember, with all of these defense contractors, was called Prosecution Elwy. And so I represented Boeing, I represented Northern, and I represented SSIC. I represented the many many big defensive contractors. And I would be told when I went in, Look, I m sorry but that branch manager did something they shouldn t have done and we are going to hold you liable. And they re thinking was this: if the chairman of the board or the CEO of the company in the Wall Street Journal, one of their competitors, was indicted

\\jciprod01\productn\m\mia\66-2\mia208.txt unknown Seq: 3 4-JAN-12 11:18 2012] KEYNOTE ADDRESS 315 and paid the penalties that went with the indictment and lost business because of the indictment, they better get their own company in shape. I believe that s what motivated much of the effort of the department to impose vicarious liability so freely. But the defense lawyer, when you got one of these cases, you reacted as follows as the lawyer for the company: You knew your first line of defense was seeing to it that they could not convict or indict the individual, because if they indicted the individual or had the evidence against the individual, sure as day follows night, they would indict the company. So one thing we would do was that we would see to it that all of the employees who came under the kin of the Justice Department or U.S. Attorneys Office all have good lawyers. We would see that they were laywered up. Now these lawyers were not representing the company, they were representing the individuals. This was a real obstacle to the government, but it was the first line of defense for the company. If you can t get the individuals, you certainly can t get the company on vicarious liability. And it went that way for a number of years. Most of the arguments against indicting the company just weren t very effective because, as I say, they said, Well, this has more to do with sentencing. Now every now and then, you would have a United States Attorney some place who had their eyes on a governorship or the Senate, and you could go in and say, Look, if you indict this company and this is real you are going to put 4,000 people out of work. The company could get debarred. Four thousand people, they ll go into bankruptcy. Now that doesn t work in New York, that doesn t work in Los Angeles, and it probably won t work in Miami. But in Birmingham, Alabama, or in Portland, Maine, or places where jobs are really important, it does sometimes work. Except for that, it was very difficult to convince the government not to go after the companies. When you represented defense contractors, or banks, or financial institutions, you were in a very difficult spot because they are highly regulated entities. The presumption of innocence, with all do respect, is a sham in these situations. It s a rule of evidence in trial, that s all it is. Because they can suspend a government contractor on the mere fact of an indictment, and you would say, Well, how can you suspend me? I m presumed innocent. And they ll say, Look at the regs. And most regulators don t have the courage of resisting that. You don t get in trouble if you just follow the reg. You can do it, so do it. You d only get in trouble, they think, if you don t do it. So this is how it was for a number of years then, obviously, these things happen in a smoother upgrade and not as sharp as I am saying. Someone woke up one day, as I like to say, which is probably not

\\jciprod01\productn\m\mia\66-2\mia208.txt unknown Seq: 4 4-JAN-12 11:18 316 UNIVERSITY OF MIAMI LAW REVIEW [Vol. 66:313 entirely accurate, and said, Wait a minute. Why don t we do this just a little differently? Why don t we say to companies: No matter what your employees did, we ll give you a shot at not being indicted, but what you have to do is cooperate with us. We want you to turn those employees into us. We want you to conduct an investigation. Find out what went wrong and come and tell us. Give us a report and we may cut you a break. A non-prosecution agreement was the first one. And that of course put the company right at odds with their own employees and that changed the defense tactics. If you wanted employees to cooperate with your investigation, you would have to advise them of the situation ethically, but you really hoped that they didn t get lawyers. So that s what we have today except now it s even getting worse. Recently, maybe a year ago, came a case that I m still handling as lead counsel to a major international bank. The bank got a letter from the State District Attorneys Office of New York and invited the company s representative to come see them. The company asked me to go and I went. Not only was the State D.A. there, but the Department of Justice as well. That s another change. They were all there working together and it was said, Look, and there s a lot of body language that goes into this, we can t promise you what we will do, because we can t buy the pick of the pulp. I never really understood that expression, but you know what I mean. But here s what, you conduct an investigation, and you report the results to us, and we will seriously consider giving you a deferred prosecution agreement. Now what does that mean exactly, a deferred prosecution agreement? It means that they prepare a charging document and information in lieu of an indictment and the company s statement of facts, usually very bad facts, and it s filed with the court. It s a charge. And they say, If you re good boys and you do everything you have to do, you cooperate with us, you give us all the dirt that you found, and you hire a monitor to come in to see that your following what is promised, then in two years or three years we will drop the charges. And that s the name of the game today. But it is a very complex problem and I raised the issue about whether that is the appropriate use of the adversary process. Well, to be honest, there is no adversary process here anyway maybe with individuals. It is an administered process. Now, if you re representing a publicly held company, the truth of the matter is, you cannot fight the government. No matter how weak their case is, you cannot fight them because, if your client gets indicted, there are disastrous consequences. The government contractor is almost surely the barman unless you can work out some sort of a deal. If you are representing a major defense

\\jciprod01\productn\m\mia\66-2\mia208.txt unknown Seq: 5 4-JAN-12 11:18 2012] KEYNOTE ADDRESS 317 contractor who happens to be involved in a super secret black program and you are the only one that can provide these services, you may not get debarred. But if you are any other company you will get debarred. Getting back to this bank, the regulator who is the person these publicly held companies fear the most says, You can t fight the Justice Department. If you are going to try and get an acquisition in California or Maine, or Florida of a new bank, we can t sign off on that when you re at war with the Department of Justice. So you can t fight them. What I m telling you is all public record. I was lead criminal counsel in KPMG, the accounting firm. And it was a case I thought we could go to trial on. No good trial lawyer says he will win, because we all know you win some you shouldn t, then you lose some you shouldn t. And except me, I never lose, right? Read the book. No, but realistically we could have fought that case. It was a small part of KPMG that was engaged in some creative tax shelters. No court, nor the IRS, had ever said that this particular program was wrong or illegal or whatever. But the Southern District of New York decided they would indict. And this was after Arthur Andersen. I thought one of the easiest arguments I would ever have to make as a lawyer was to say, Look what you did to the number three accounting firm. There s only four left and you re going to knock another one out. There are only about four accounting firms that can do the work. And to my shock they decided to indict KPMG, so I appealed it to the Attorney General s Office. As you practitioners know, it s very unusual to get the reversal of the Southern District, or any district, but I had some very good arguments and it was reversed. And so we then entered, and they were directed to enter, a deferred prosecution agreement with us. Now, there was something very interesting that happened in that case. You know there are cases where I tell clients, Look, they deferred. Let s do the investigation and let s give them that, and if you can get it deferred, you re lucky, because the evidence is bad. But in this case, I didn t really feel that way, and so before we made the decision about whether to tell the government to go to hell and we ll fight them, we did a little informal poll with many of their major customers. What I m about to tell you has happened with other matters and now, again, this is anecdotal. I haven t done any scientific surveys. I m telling you about my practice. Companies now look at deferred prosecution agreements as flavors of the month. And the reaction I have gotten in a number of cases is the following: Look, we ll stay with you. You have been a great accountant or you ve been a great bank, or you ve been a great this or that

\\jciprod01\productn\m\mia\66-2\mia208.txt unknown Seq: 6 4-JAN-12 11:18 318 UNIVERSITY OF MIAMI LAW REVIEW [Vol. 66:313 and we are not going to stop using you if you ve entered a deferred prosecution agreement. You say, Oh but, you know, you should know the statement of facts is pretty nasty. Oh we don t care about that, but if you get indicted, we can t use you. Now think of it logically, if you were on the audit committee of a major company, would you dare run the risk of using a company or a firm or an accounting firm or a bank that was under indictment? You d worry about your own individual liability. You d worry about the plaintiff s actions, civil suits, that the first question would be, Are you aware that when you retained them, they were under indictment? So the bottom line is, even when you can, you simply cannot fight the government and you are a good boy or girl and you go into these agreements. Now, these agreements are not easy. In one of my recent cases, the company spent literally, and this is hard money not soft stuff, $800 million. We conducted an investigation in 100 countries, and while the legal fees were enormous which is one of the good things about this the accounting fees were even more. And we took all of this evidence and we put it in a nice box. We put a nice ribbon around it. We gave it to the government and we got our deferred criminal prosecution agreement. So this is where we have come now, if you represent a foreign company, as I am representing. You have some very interesting discussions because you don t get a guarantee at the front end with the Justice Department, you will get a deferral. Because they are always worried. Let s say they re investigating a scrubbing of accounts you re hiding in a sanctioned country and then they discover that you re running a major money laundering operation. So they won t give you a guarantee up front. The say, Trust us. And in many cases I do if I m dealing with certain cases, and I have been burned on some things but usually its involving Brady and they don t give you stuff they are supposed to, but outside of that, I never had a problem. They keep to their word. But you try to convince a foreign company, which has total distrust of U.S. law enforcement mechanisms, they ve got to cooperate. You ve got to end run all your privacy things, you ve got to really give them this stuff, and you don t have a guarantee in return. They really wonder if they have the right lawyer. It s very troubling and then the coup de grâce is when they say, Well, is there anything else? and you say, Well, yeah, there s this thing that we ll get it deferred, and if you re a good boy for three years they ll drop it. But they want to put a monitor in your company to monitor your compliance to be sure your compliance code is right and your audits are right and everything. And you don t control that person, you ve got to pay them I ve been there when they paid them you ve

\\jciprod01\productn\m\mia\66-2\mia208.txt unknown Seq: 7 4-JAN-12 11:18 2012] KEYNOTE ADDRESS 319 got to pay them and then they will periodically meet with the Justice Department and give them reports. Well with that, that lands itself to some very interesting screaming matches with your own clients because they think that is absolute craziness. So that s kind of the world that we live in. I raise with you all you very smart people and your panels are just superb, I mean if I could stay I would because I know I would learn a lot with these great panelists that you have but from a philosophical point of view, is this the way the system is supposed to work? Now the government would argue, To be fair, yeah, that s the way it s supposed to work. We re improving things. We re eliminating criminal conduct. This is a betterment of society. You have a choice: you can fight us if you want. I m sorry about the consequences of fighting, but that s not my problem. And we re doing good for society. We re making companies more honorable and we re eliminating a lot of criminal conduct. And I, as a defense lawyer who has a problem with all of this, and well if I said to my client, Look, I m really sick of the government s approach here. Let s fight them. They would say, Well, what, are you crazy? I want that deferred prosecution agreement. I don t want to take the chance of being indicted, because if I m indicted I ll lose everything. I won t be able to keep my business going in the States. I would lose customers. I would lose clients. But it raises a very interesting question if the criminal law is supposed to be an adversary process. But I can tell you in all candor that I have from time-to-time risen above principle and told my clients to take the deferred because it will be less painful than it will be if you try to fight the government. So I think we have time for ten or fifteen minutes of questions and I would like to open it up. All questions are welcome some answers may not be about any subject.

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