White-Collar Crime Feels the Legal Heat
BOSTON — THERE is no recession for the white-collar criminal-defense bar. Leading white-collar-crime attorneys are awash in litigation and major law firms are gearing up for business defending corporations and their executives against criminal and civil prosecution.
Massive scandals, such as the the savings-and-loan crisis, the Salomon Brothers securities price-fixing scheme, the money-laundering activities of the Bank of Credit and Commerce International (BCCI), plus new federal "Guidelines for Sentencing" that became law in November are generating more prosecutions, say legal experts.
The decade of the '80s heightened public concern about white-collar crime, says Whitney Adams, chairman of the white-collar-crime committee of the American Bar Association. Corrupt business executives, politicians, corporations, labor unions, and even universities are "politically, an attractive issue for prosecution today," she says.
The new federal guidelines pack a one-two legal punch for law firms, says David Zarnow, a former prosecutor and partner in the white-collar division of the New York-based Skadden, Arps, Slate, Meagher & Flom, one of the largest and most profitable law firms in the world. The guidelines not only increase the potential number of white-collar and corporate clients, but also extend the reach of prosecutors in criminal cases, he says. They substantially increase the severity of the fines imposed on corporatio ns convicted of a wide range of federal offenses - for example, mail, wire, securities, tax, and government-contract fraud.
Just five years ago, criminal-defense attorneys were in specialized firms or practicing alone, says Mr. Zarnow. Now, many of the leading criminal-defense attorneys have joined large law firms.
Prosecutions are likely to increase because of two important criteria that "get prosecutors involved" stemming from the new guidelines, says Ms. Adams. A prosecutor asks two questions, she says: What is the likelihood of winning? What is the likelihood of getting good sanctions? The sanctions now are specific, focus on compliance, and carry stiff penalities.
Techniques and prosecutorial tools developed for the war on drugs, especially the Racketeer Influenced and Corrupt Organizations Act (RICO) "pushed the envelope out," Zarnow says. "We're living through a period where we seek to dispose of issues of blame, of fault, of liability, through criminal litigation rather than civil," he says.
The guidelines are "a piece of social engineering," he says. Corporations can't plead the Fifth Amendment, he says. The risk of going to trial is tremendous for corporations.
If they lose, they can be banned from winning government contracts; they can lose their charter for doing business, or their licenses. Helping corporations establish compliance programs is where law firms are most actively involved, says Dana H. Freyer of Skadden, Arps.
THE federal government is more and more borrowing the strategies from the war on drugs and organized crime, says Paul Kamenar, executive director of the Washington Legal Foundation.
Thanks to Congress, "the guidelines give more fodder, more ammunition for organizational sanctions to any nonhuman entity that breaks the law," he says.
Not only do they empower a prosecutor to ferret out crime and exact huge fines, but they also give judges - at the insistence of prosecutors - the discretion to place corporations on probation, Mr. Kamenar says. "This gives the judges the power to run the business," he says, just like they now can run prisons or public school systems.
The guidelines seek to prevent and detect violations of federal law. They do this by requiring top management of corporations, if they detect a violation, to go to the government with information or face prosecution, says Kamenar. Prosecutors can pin a "badge onto corporate managers and sign them up as auxiliary prosecutors," Zarnow says.
Companies can accrue credits against potential penalities by having in place compliance programs mandated by the sentencing guidelines. Otherwise, what might be a civil prosecution can quickly become a criminal one.
Before the sentencing guidelines, it was relatively easy for individuals convicted of white-collar crime to plea bargain - to negotiate relatively light sentences in exchange for cooperating with prosecutors.
What this means, Kamenar says, is that "a good corporation, which may have never had a criminal offense, will have to spend enormous amounts of money for compliance programs that will not further production for whatever product it makes, or service it offers."