Jeffrey Sterling, James Risen, and Prosecuting Leakers: Lessons from the Sterling Trial

UPDATE 1/26/15 3:30 pm – the jury has found Sterling guilty on all nine counts.

UPDATE 5/11/15 – the judge today sentenced Sterling to 42 months in prison.

The long legal saga involving former CIA officer Jeffrey Sterling is drawing to a close. At this writing his criminal trial has concluded and the jury in Alexandria, Virginia is deliberating.

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Sterling was indicted on multiple counts of violating the Espionage Act and related charges. The government alleges he illegally leaked classified information concerning a covert CIA operation to New York Times reporter James Risen. The program, dubbed “Operation Merlin,” involved using a Russian scientist working with the U.S. to deliver flawed nuclear weapon blueprints to Iran in an attempt to derail their weapons program.

When Risen first received the information the Times honored a government request not to run the story due to national security concerns. Risen, however, later revealed the same information in his book, State of War.

Ever since Sterling was indicted in 2010, a central drama in the case had been the government’s efforts to compel Risen to testify about whether Sterling gave him the classified information. Risen refused to comply with the government’s subpoena, claiming a reporter’s privilege to refuse to identify his source.

The trial judge initially upheld Risen’s privilege claim and the government appealed. Relying on the 1972 Supreme Court case of Branzburg v. Hayes, the U.S. Court of Appeals for the Fourth Circuit ruled there is no privilege that allows a reporter to refuse to testify in a criminal case. The U.S. Supreme Court declined to consider Risen’s appeal.

After his appeals were exhausted, Risen continued to say he would go to jail rather than comply with the court order to testify and reveal his source. Shortly before the Sterling case went to trial, the government announced that it would withdraw its subpoena of Risen and would not seek his testimony. The trial proceeded without Risen taking the stand.

So what lessons can be drawn from the Sterling/Risen drama?

DOJ’s Decision to Drop the Risen Subpoena 

The big surprise in the case was the government’s decision to drop the Risen subpoena. Risen was a critical witness, and the case was delayed for nearly four years while the government fought for the right to compel him to testify. Why would you do that if you’re not willing to follow through?

The prosecutors ended up going to trial with one hand tied behind their backs. The best possible witness to the alleged disclosure of classified material – the person to whom it was disclosed – did not have to take the stand. The government was left to put on a circumstantial case relying on evidence of phone calls, e-mails, and details in Risen’s book that allegedly could only have come from Sterling. The prosecutors who fought for years to compel Risen to testify must have felt they had the rug pulled out from under them.

But the truth is the government simply bowed to the inevitable. When Judith Miller of the New York Times was jailed for contempt in 2005 for refusing to testify about her source in the Valerie Plame/CIA leak case, that was in connection with a grand jury investigation. The grand jury could simply be put on hold while waiting to see whether the contempt penalty would convince Miller to change her mind. After 85 days in jail, Miller ultimately did agree to testify in the grand jury after her source, Scooter Libby, released her from her promise of confidentiality.

But the Sterling case involved a trial, not a grand jury investigation. If Risen were called to the stand and refused to testify (as he clearly would have), he could be jailed for contempt but the trial would have to go on. The judge would not, and could not, put the entire trial on hold for weeks or months to see whether Risen came around. And once the case was over, Risen would have to be released; a witness can’t be incarcerated to coerce him to testify when the proceeding where his testimony is required no longer exists.

In the end, therefore, the government would have had to endure all the fallout from jailing a reporter and the prosecution still would not have had the benefit of Risen’s testimony. Despite the government’s legal victories, Risen ultimately held all the cards so long as he was willing to go to jail for a few days until the trial was over. Given that reality, it made sense for the government to fold.

The Difficulty in Prosecuting Leak Cases 

The Sterling case highlights the problems with leak cases from a prosecutor’s perspective. First, they are notoriously difficult to investigate. Assuming the leak was to a member of the press, DOJ Guidelines will not allow the prosecutor even to attempt to speak to the only direct witness – the reporter – unless all other possible avenues have been exhausted (and maybe not even then).   That means a difficult investigation trying to identify and interview every potential source of the leak, scouring computers, e-mails and telephone records, and otherwise trying to establish proof sufficient to sustain a conviction with largely circumstantial evidence.

In the rare case where the prosecutor does seek information from the reporter, that effort will almost undoubtedly be met with fierce resistance. There will be a lengthy delay as the reporter, backed by top First Amendment lawyers, litigates whether he or she has a privilege to refuse to testify. Delay is bad for a prosecution: memories fade, witnesses become unavailable, and the case generally gets more difficult to prove.

Finally, if the case ultimately goes to trial, the government will be hamstrung in presenting its case. Matt Zapotosky had a nice piece in the Washington Post last week about the challenges of trying leak cases. To prove a leak of classified information the government has to expose at least some material that, by definition, was not supposed to be public. The Sterling case involved CIA officers testifying behind a screen to protect their identities and certain lines of questioning that were deemed out of bounds due to the restrictions on classified information. The government has to walk a tightrope between proving its case and still protecting the confidential information that led them to bring the case in the first place.

Sometimes these obstacles are insurmountable. In a high-profile embarrassment in 2011, the government was forced to drop felony charges against alleged leaker Thomas Drake after the judge ruled that Drake had to be allowed to reveal certain classified information in order to defend himself. Rather than reveal the information during the trial, the government allowed Drake to plead to a single misdemeanor.

No wonder leak prosecutions are relatively rare and are considered almost a no-win proposition by federal prosecutors.

The Hazards of Relying on Leakers

In his book, Risen claimed that Operation Merlin had been botched and may actually have helped Iran. (This was also Sterling’s view, which is one reason he was suspected to be Risen’s source.) CIA officials at Sterling’s trial painted a very different picture, testifying that the program had been working and that its disclosure damaged our efforts to thwart Iran’s nuclear program and may have put the lives of American assets overseas at risk.

It’s probably not surprising that government officials would have a different view of the program. Given its classified nature it may be years, if ever, before we know the full truth. But this does highlight the hazards for journalists of working with a leaker of classified information.

People leak information for all kinds of reasons, some of them noble and some not so noble. The government alleged that Sterling was a disgruntled former CIA employee who had been fired, had filed multiple personnel actions, and had an ax to grind. Such an individual has an incentive to leak information that makes the agency look bad and to slant their disclosures in a certain way.

A prosecutor working with an informant faces an analogous situation. A good prosecutor realizes that an informant may shade the truth or tell outright lies in order to make themselves look less culpable or to try to tell the prosecutors what the informant thinks they want to hear. If I have an informant telling me about a drug operation, I’m going to investigate to death everything they tell me and try to corroborate it with other witnesses and evidence. I don’t ever want to be in a position of having to take just the informant’s word for anything – or to ask a jury to do so. A prosecutor in such a case has to be wary of “falling in love” with his informant and accepting what they say uncritically.

Journalists, too, may “fall in love” with a source. A good journalist will recognize this risk, of course, but his options for corroborating the source are more limited. If a journalist receives illegally leaked classified information, other people are not likely to talk to him about it. He can’t make extensive inquiries without potentially exposing his source. Even if other government officials wanted to provide contrary information or a fuller picture, they may be unable to do so without revealing additional classified material.

When it comes to stories based on classified information there is a risk that a journalist, armed with what appears to be a juicy disclosure, will run a story based on incomplete or even inaccurate information. The journalist may be getting only one perspective and is seeing only what their source wants them to see. A good and professional journalist will do whatever possible to avoid this, but the risks are still there. And of course there are bad and careless journalists out there, just as there are bad and careless prosecutors.

I have no idea where the truth lies concerning Operation Merlin and I’m certainly no apologist for the excesses of the CIA during the “war on terror.” But given the choice between believing Sterling’s account (as reflected in Risen’s book) and that of the career CIA people who testified at his trial, I see no particular reason to believe Sterling. It seems perfectly plausible to me that the program was working and that its disclosure harmed national security. Only the most cynical partisan would argue that, simply because it’s the CIA, the operation must have been flawed and the officials at Sterling’s trial must have been perjuring themselves.

The broader cautionary point is that not all leakers are virtuous whistleblowers interested only in the public good, not all leaks are a good thing or are necessarily truthful, and just because a secret government operation is disclosed in the press doesn’t mean that the press got it right or got the whole story.

NY Times

The Reaction of the Press

 As you might expect, there has been a fair amount of ball-spiking by the media going on since the government dropped the Risen subpoena, with the press praising Risen as a hero and condemning the prosecution. The New York Times wrote an editorial last week called “Lessons of the James Risen Case,” criticizing the Obama administration’s supposed record of “aggressively attacking investigative journalism” and praising journalists like Risen who “stand up” to the government.

As I discussed in a previous post, leak cases are about trying to stop leaks and protect national security, not about attacking journalism. Due to the nature of the cases clashes with the press happen from time to time, but that’s a far cry from saying that journalism itself is under assault. Only a handful of leak cases are brought, and most of those do not involve attempts to subpoena a journalist.

The Times laments that the Risen case resulted in an “atrocious legal precedent” in the Fourth Circuit denying a reporter’s privilege.  But the Fourth Circuit’s decision was not some kind of new, groundbreaking result; it was a relatively straightforward application of Branzburg, the controlling Supreme Court case that the Times neglected to mention.

The Times and others also argue that the Risen incident demonstrates the need for a federal shield law for reporters. Privilege advocates argue that a shield law is essential to ensure that aggressive investigative reporting such as Risen’s will continue. I completely agree about the critical importance of investigative journalism, but this argument always baffles me. The leaks to Risen, as well as all of the leaks over the years concerning things such as Abu Ghraib, secret CIA prisons, Watergate, and so on, took place without a federal shield law. If anything, the fact that leaking has gone on at a robust pace in the absence of a shield law demonstrates that a shield law is unnecessary.

In any event, the proposed shield laws that have been kicking around Congress for the past decade all have contained exceptions where national security is concerned. Congress is understandably not willing to pass a law providing that sensitive classified information may be disclosed to reporters with impunity. Even if a federal shield law were in place, therefore, it likely would not have protected Risen in this case.

There are other significant obstacles to passing a shield law, including how to define who is a “journalist” entitled to the law’s protections. In the end, the Risen case is unlikely to have any significant effect on the long-stalled efforts to get a shield law through Congress.

The press outrage over James Risen and some other recent cases has already prompted the Department of Justice to further tighten the guidelines concerning when a prosecutor may seek information from a reporter. I expect clashes such as the one between Risen and DOJ are going to become even more rare in the future, and leak cases will become even more difficult to prosecute. That may be the real legacy of the Obama administration’s so-called “war on the press.”

Why Bob McDonnell Was Convicted of Extortion

Bob McDonnell didn’t threaten to break anyone’s kneecaps — so how did he end up convicted of extortion? It’s thanks to a federal statute known as the Hobbs Act, one of the quirkier arrows in the public corruption prosecutor’s quiver.

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The former Virginia governor and his wife Maureen were convicted last fall of accepting $175,000 in gifts and loans from businessman Jonnie Williams in exchange for agreeing to use the power of the governor’s office to promote Williams’ dietary supplement, Anatabloc. A public official agreeing to take action in exchange for gifts sounds like bribery, and indeed the McDonnell case is widely (and properly) understood as a bribery case. If you review the Indictment, however, you won’t find a charge called “bribery” anywhere.

The essence of the crime of bribery is a quid pro quo, or “this for that” – in exchange for something of value to which she is not entitled, a public official agrees to exercise the powers of her office to benefit the bribe payor. Bribery is the quintessential public corruption offense: the political system is corrupted because a public official is acting not in the best interest of all but in order to benefit the person who paid the bribe.

But the federal bribery statute, 18 U.S.C. § 201, applies only to federal public officials and to those acting for or on behalf of the federal government. In most cases it will not apply to state or local government corruption. Using it was not an option in the McDonnell case. (This, by the way, is why I believe all of the focus on whether McDonnell’s actions qualified as “official acts” under section 201 has been misplaced. For my analysis of the question of “official acts” see my earlier posts here and here.)

Federal prosecutors looking to charge state and local bribery must therefore turn to different statutes. The three most common are 18 U.S.C. § 666 (covering bribery in connection with certain programs receiving federal funds); honest services fraud (a species of mail and wire fraud), and something called “extortion under color of official right” under the Hobbs Act. McDonnell was actually convicted of two counts of conspiracy, three counts of honest services fraud, and six counts of Hobbs Act extortion.

 The Hobbs Act

The Hobbs Act prohibits acts of robbery or extortion that have an effect on interstate commerce. Passed in 1946 and named for its sponsor, Alabama Democrat Sam Hobbs, the Act appears in a section of the criminal code alongside statutes aimed primarily at organized crime and racketeering. Its title is “Interference with commerce by threats and violence” – no mention of bribery.

The link to interstate commerce is basically a jurisdictional hook, necessary to give Congress the power under the Commerce Clause to criminalize offenses historically prosecuted by the states. Even the most trivial effect on interstate commerce will suffice and this requirement usually is easily satisfied, but it is nevertheless an element of the offense that the government must prove beyond a reasonable doubt. (McDonnell’s lawyers actually argued unsuccessfully in their post-trial motions that the government had failed to present sufficient evidence of an effect on interstate commerce.)

The meat of the statute is the requirement of robbery or extortion. Robbery is defined in the usual way as taking property from another against their will through the use of actual or threatened force or violence. Extortion is defined as “the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right.”

The word “extortion” conjures up images of a burly guy smacking his palm with a baseball bat while recommending that you pay him a “health insurance premium” – if you want to remain healthy, that is. In extortion, unlike robbery, the victim consents to turn over his or her property but does so under some kind of coercion or duress.

The Hobbs Act prohibition on extortion by force, violence or fear covers this classic “baseball bat” extortion. It applies to extortion by fear not only of physical injury but also of economic injury, such as a computer hacker threatening to crash a company’s website if it does not pay up. But it’s the extortion “under color of official right” clause in the Hobbs Act that has become so important in federal corruption cases.

 Evans v. United States: When Is Extortion Not Really Extortion?

The Supreme Court outlined the contours of Hobbs Act extortion under color of official right in the 1992 case of Evans v. United States. John Evans was a member of the Board of Commissioners of DeKalb County, Georgia. In 1985 and 1986 the FBI was conducting an undercover investigation into public corruption involving rezoning of property in the Atlanta area. An FBI agent posing as a real estate developer had a number of meetings and phone calls with Evans discussing the possible re-zoning of a parcel of land.

In July 1986 the agent gave Evans $7,000 in cash, along with a check for $1,000 made out to Evans’ campaign. Evans did not report the cash on his campaign finance forms or on his income taxes. The government charged that he took the money knowing it was intended to ensure that he would vote in favor of the re-zoning application and would attempt to persuade his fellow commissioners to do the same. On that basis, he was convicted of one count of extortion under color of official right under the Hobbs Act.

In the Supreme Court Evans argued that a payment was not “induced . . . under color of official right” within the meaning of the Hobbs Act unless the public official had taken some specific action to seek out or demand the payment. It was not extortion, he argued, for a public official just to accept the money knowing that it was in exchange for a promised official action – the official must do something to initiate the transaction.

Evans’ argument certainly squared with the common understanding of the term extortion, which brings to mind visions of a public official strong-arming or “shaking down” a victim and demanding payment in exchange for exercising official power. (“Oh, you want that property re-zoned? So what are you going to do for me?”) Extortion connotes some element of duress, and there was no evidence that Evans even requested the payment, much less pressured the agent to make it.

But the Supreme Court disagreed. After a lengthy examination of legal history, the Court concluded that at common law extortion by a public official “was the rough equivalent of what we would now describe as ‘taking a bribe.’” A demand or request by the public official was not an element of the offense. Congress, the Court said, must have had this common-law definition in mind when it passed the statute.

The Court therefore concluded (over a vigorous dissent) that extortion under color of official right requires only that the public official accept a thing of value to which he or she is not entitled, knowing that the payment was made in exchange for some exercise of official power. No demand, shakedown, or other affirmative act of inducement by the public official is required. Evans’ conviction was therefore affirmed.

 Is it Bribery or Extortion?

In the wake of Evans, as the Supreme Court itself basically agreed, there is not much difference between Hobbs Act extortion under color of official right and bribery. This is an odd result for a couple of different reasons.

First, it’s clear that bribery and extortion are in fact distinct crimes and that Congress knows the difference. For example, a companion statute to the Hobbs Act called the Travel Act (18 U.S.C. § 1952) prohibits interstate travel to further any unlawful activity, which is defined to include “extortion, bribery or arson.” 1952(b). If Congress really meant the Hobbs Act to apply to bribery rather than (or in addition to) extortion, it knew how to say so.

Second, as the dissent in Evans pointed out, in terms of criminal liability there is a fundamental difference between bribery and extortion: the status of the person paying the public official. In a bribery case, both parties to the transaction are willing participants and are considered equally culpable. The crime of bribery applies to both the payor (who is seeking to influence the official) and to the payee (the public official agreeing to be influenced) and both may be charged. The federal bribery statute, 18 U.S.C. § 201, reflects this by criminalizing both the bribe payment (§ 201(b)(1)) and the receipt of the bribe (§ 201(b)(2)).

In an extortion case, by contrast, the person paying the public official is considered a victim who paid under duress (physical or emotional) and because they felt they had no choice. As a result, the crime of extortion applies only to the person receiving the payment. There is no express provision in the Hobbs Act for charging the person who turns over the extorted property.

This critical difference between the two crimes supports Evans’ arguments and makes it particularly odd that the Supreme Court would conclude that bribery and extortion by a public official are essentially the same crime. The effect of Evans is that the Court created a unique statutory animal: a bribery statute where only one side of the corrupt transaction may be punished.

(A few courts have held that the payor in a Hobbs Act case may be charged with aiding and abetting the extortion by the official he paid, although other courts disagree. This seems like a reach; charging the “victim” of a crime with aiding and abetting the perpetrator is a strange concept. The holding in Evans may make such a charge theoretically possible, but that simply illustrates what a tortured result Evans is.)

A federal prosecutor looking at a public corruption case and considering the Hobbs Act has to keep in mind this distinction between bribery and extortion. From a prosecutor’s perspective, in a bribery case the payor should be sitting at the defense table with the public official. In an extortion case, the payor is usually your star witness.

If the facts of a case suggest that what took place was a bribery transaction with both sides willingly participating then a Hobbs Act charge likely is not a good choice — at least if you want to charge the payor. Better options would be the federal bribery statute (for federal officials) or honest services fraud, which also applies to both sides of a bribery transaction.

Extortion in the McDonnell Case

In the McDonnell case the government chose to immunize the bribe payor, Jonnie Williams, and have him testify for the prosecution. Since it had already chosen not to charge the payor, the government did not need to worry about the fact that the Hobbs Act would apply only to McDonnell.

Still, even though legally it is perfectly sound and appropriate, it feels a bit incongruous to see the same events charged as both honest services fraud bribery and as Hobbs Act extortion, as they were in the McDonnell case. Theoretically, at least, the two charges describe two quite different factual scenarios, one where the payor is culpable and one where he is not.

In McDonnell’s case, of course, the evidence showed that Jonnie Williams was a more than willing participant in the corrupt transactions. That describes a classic bribery scenario in which Williams is also culpable and could be charged – hence Williams’ need for immunity. Hypothetically, though, if the government had charged McDonnell with only Hobbs Act violations there would have been no ready basis on which to charge Williams – even though as a factual matter that’s absurd.

In accordance with Evans, McDonnell was convicted of simply accepting the gifts from Williams while knowing they were being given in exchange for his agreement to use the power of his office to promote Williams’ product. So McDonnell was convicted of extortion for conduct that was actually bribery, and under the current state of the law that was perfectly normal.

Like I said, the Hobbs Act is quirky.

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The Crisis in Corporate Criminal Liability

Last week in my White Collar Crime class we discussed corporate criminal liability. The presence of corporations as potential defendants is one of the distinguishing features of white collar crime. The way corporate criminal liability has been trending for the past decade, however, the topic is starting to feel more appropriate for a course in legal history.

Indicting and convicting big corporations has fallen out of favor, increasingly replaced by a system of negotiated Deferred Prosecution Agreements and Non-Prosecution Agreements. It’s a troubling trend and a sign that something in the criminal justice system is out of whack.

 Blackstone

No Soul to be Damned, and No Body to be Kicked 

At common law, corporations could not be charged with a crime.  With “no soul to be damned, and no body to be kicked,” companies were not considered an appropriate target of criminal sanctions. A corporation could not be deterred from criminal conduct through fear of moral condemnation in this life or the next. Nor could a company be deterred through fear of corporal punishment or be locked up to protect the rest of us. Criminal law as applied to an artificial entity just didn’t seem to make sense.

The Supreme Court tossed this common law rule aside more than 100 years ago in New York Central & Hudson River Railroad Co. v. United States (1909). The railroad and its freight manager were convicted of providing illegal rebates to sugar producers to encourage them to ship their product by rail rather than by water.

The company argued it could not be convicted because to do so would harm innocent shareholders without due process. Shareholders had not been charged and had no opportunity to defend themselves, but they were the ones who would suffer if the company were convicted. The railroad also argued that a criminal act could not truly be considered an act of the corporation unless formally authorized by the board of directors, and the freight manager had been acting on his own.

The Supreme Court rejected both arguments. Adopting the theory of respondeat superior (“let the master answer”) from tort law, the Court concluded the same doctrine applies to criminal liability and makes the corporation liable for the criminal acts of its agents. The Court reasoned that criminal sanctions are essential to controlling corporate misbehavior and that it is appropriate to hold the company responsible for the crimes of those acting on its behalf.

Under respondeat superior, in federal cases a corporation is liable for the criminal acts of its agents if those acts were taken at least in part to benefit the corporation and if the agent was acting within the actual or apparent scope of his or her employment.   This is true even if the actions were those of a “rogue employee” acting without authorization.

Throughout most of the twentieth century, corporate criminal liability was an important weapon in the battle against white-collar crime. In the past decade, however, there has been a marked decrease in the Department of Justice’s appetite for prosecuting big corporations. Many people trace this development to the Arthur Andersen debacle.

The Legacy of Arthur Andersen

Arthur Andersen, one of the so-called “big five” accounting firms, was indicted in 2002 for obstruction of justice. Andersen was Enron’s auditor, and a few employees in its Texas office had shredded millions of pages of Enron-related documents in anticipation of an SEC investigation.

Andersen was convicted at trial and appealed all the way to the Supreme Court. In 2005 the Supreme Court reversed the conviction, finding that the jury instructions in the case had been flawed. But it was a hollow victory; during the appeals the company went out of business as clients fled from an accounting firm operating under a criminal cloud. More than 28,000 employees in the U.S., and 85,000 worldwide, lost their jobs.

The Department of Justice was roundly criticized for the Andersen prosecution, which caused tremendous collateral damage to innocent parties based on the actions of a handful of employees. The fallout seemed to make DOJ gun-shy about indicting companies. In the wake of the 2008 financial crisis, some administration officials even expressed concern that certain companies may be “too big to jail” and should not be prosecuted because if they were to collapse the damage to the economy would be too great.

Deferred Prosecution Agreements and Non-Prosecution Agreements

This growing reluctance to indict and prosecute companies has coincided with another phenomenon: the rise of the Deferred Prosecution Agreement. (Non-Prosecution Agreements are basically the same thing; for simplicity here I will just refer to DPAs.)

A DPA is a negotiated deal to resolve a criminal investigation. In a DPA, the prosecution agrees it will not proceed with criminal charges if the corporation complies with the term of the agreement. Typically these terms include paying fines or restitution, undertaking internal corporate reforms, cooperating in ongoing investigations, and hiring (and paying for) a monitor to oversee the company’s compliance for a period of years. If the company fully complies with the agreement, any potential criminal charges are dropped.

DPAs have seen an explosive rise in popularity. In the early 2000s before the Andersen case, there was an average of only 2 or 3 per year. In recent years the average number of cases resolved through DPAs has been in the thirties. The real number is probably higher because not all such agreements are made public (particularly NPAs).

Both sides find much to like in a DPA. The prosecution obtains many of the same remedies (including substantial fines) that it could obtain from an indictment and conviction, and saves the time and expense of a lengthy grand jury investigation and trial. Avoiding criminal prosecution also avoids the collateral damage (and subsequent criticism) that might result from an Andersen-like collapse of a company.

For its part, the corporation avoids the risk of a criminal conviction and potentially crippling penalties. It is able to resolve the investigation and put the matter behind it, providing the certainty that Wall Street craves. Fearing they could be the next Andersen, executives may jump at the chance to reach an agreement and avoid even a slight possibility of criminal sanctions.

But although DPAs are popular and seem like a win-win, I believe their rise is a troubling trend.

The Problems with DPAs

Criminal sanctions are meant to be reserved for the most egregious conduct, in cases in which the government can prove guilt beyond a reasonable doubt to a judge or jury. As more and more criminal cases are resolved through DPAs, these principles erode. Prosecutors no longer must assemble a strong enough case to prove guilt beyond a reasonable doubt to a neutral factfinder; they need only assemble enough evidence to convince the corporation that it should cut a deal to get the matter resolved.

This almost certainly results in more marginal cases being pursued. The discipline of conducting a grand jury investigation and assembling the evidence necessary to prepare for trial has a way of weeding out cases that don’t really merit criminal sanctions or that can’t be proven beyond a reasonable doubt. That discipline is lost if prosecutors can simply pressure a company into a DPA in a borderline case.

A criminal prosecution also contains checks and balances on prosecutorial power. A judge rules on the law, and a judge or jury decides guilt or innocence. If there is a conviction a judge, not the prosecutor, determines the sentence. With a DPA, all of those checks and balances are gone. The prosecutor is also judge and jury, deciding not only that there has been a violation but what the appropriate penalty should be.

This also means the government’s legal theories are seldom tested. In a prosecution, new or aggressive legal interpretations would be evaluated by a judge; with a DPA, the law is whatever the prosecutor says it is. This has been particularly true in areas such as the Foreign Corrupt Practices Act, where so many cases are resolved by DPAs that there is very little decided caselaw. The law comes to be defined through the “common law” development of the prosecution’s interpretations as embodied in the DPAs, with little or no judicial oversight.

All of this places enormous additional power in the hands of prosecutors. It also transforms the criminal justice system into a quasi-regulatory regime, with prosecutors making decisions and demands about appropriate corporate behavior. The DPA may mandate changes in Board membership, internal compliance programs, and other business practices that affect corporate governance. Prosecutors end up shifting their focus from punishing past criminal acts to shaping future corporate behavior. This is not a criminal prosecutor’s area of expertise.

But perhaps the most damaging result of this trend is the erosion of the moral force of the criminal law. Criminal sanctions are a unique deterrent due to the moral condemnation of the community that accompanies them. Individuals do not want to be labeled a criminal in the eyes of the community; it carries a stigma not associated with any other penalty. Most defendants, particularly white-collar defendants (who typically are not career criminals), will work hard to avoid that stigma.

Although corporations have no “soul to be damned,” this same moral stigma still applies to corporate criminal sanctions. One simple reason is the bottom line: companies do not want their customers to see them labeled as a criminal organization. It’s bad for business to be thought of as a crook. What’s more, companies are run by individuals for whom this moral condemnation also holds sway – the CEO of a company does not want her friends and neighbors to see in the news that the company she leads is a criminal.

One need only see how mightily a corporation will strive to avoid a criminal conviction to know that this deterrent effect of criminal sanctions is real.

If large companies start to believe that criminal sanctions are basically off the table, the criminal law will lose this unique deterrent capability. Corporations will know that, no matter how bad the misconduct, they can likely buy their way out of a criminal case by entering into a DPA. This may encourage corporate officers to skate closer to the criminal line – or to jump over it.

 The Future of Corporate Criminal Prosecutions

It’s hard to see a good solution to this trend. Corporations are under tremendous pressure to cut a deal and avoid prosecution. Resolving an investigation short of criminal sanctions usually will be rewarded by shareholders and the market. And as long as prosecutors know they have this tremendous leverage, their incentive will be to force as many companies as possible into a DPA rather than pursuing a full-blown criminal case.

My friend and former colleague Mike Volkov, who writes the Corruption, Crime and Compliance blog, wrote a great post a few weeks ago called “Corporations Need to Say the Words – ‘Let’s Go to Trial!’” He argues that, in appropriate cases, more companies need to stand up to DOJ and not simply roll over during a criminal investigation. If more corporations resisted the pressure to cut a deal, they might find many of these investigations actually going away or being referred to other agencies for civil enforcement. Call the prosecutors’ bluff, and they may decide that a potential criminal case is not really strong enough to merit the investment of the next two years of their lives.

Even when there is an indictment, it most likely will not mean the end of the company. Arthur Andersen was in a unique situation given the nature of its business and the general post-Enron hysteria that was raging at the time. Historically, though, a criminal indictment usually does not result in a corporate “death penalty.” General Electric, Exxon, Tyson Foods, Genentech — all have been criminally indicted at one time or another and are still going strong.

Companies need to realize that even if they are indicted it will be bad but need not be fatal. If necessary the criminal case may be resolved through a plea agreement with terms probably no more severe than those in a DPA, and with the added benefit that the terms will be reviewed by a judge. Or the case may be taken to trial and defended, with the chance that the company will prevail.

Prosecutors, too, need to recognize that they do not need to be gun-shy about indicting companies based on the Arthur Andersen experience. In appropriate cases, when criminal sanctions against a company truly are called for, criminal charges should be pursued to fulfill the special moral mission of the criminal law.

We already have enough regulatory agencies policing corporate behavior. Prosecutors should get back to indicting and trying criminal cases – and more corporations should develop the backbone to say, “see you in court.”

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Five Key Questions That Will Determine Bob McDonnell’s Sentence

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Update as of noon, Jan. 6:  The sentencing hearing is still going on.  McDonnell’s lawyers have had some success on the Guidelines issues discussed below.  On the value of the bribes the judge apparently split the baby, ruling the full face value of the loans should not be included but that the value was still substantially higher than the defense claimed.  Judge put the total value of the bribes at between $70,000 and $120,000, which reduced the Guidelines by two levels.  On the question of Obstruction of Justice, as noted below judges are sometimes reluctant to impose this enhancement based solely on a defendant’s testimony at trial.  Judge declined to impose it here, saying he didn’t think it was fair to penalize McDonnell for putting on his defense.  Net result:  Guidelines adjusted offense level of 28, rather than 32, and a recommended sentencing range of 78-97 months – a pretty substantial reduction for McDonnell.  Still remains to be seen whether judge will sentence with that range or depart from the Guidelines.

Update, Jan. 6, 3:00 pm – the judge has departed from the Sentencing Guidelines and sentenced McDonnell to only two years in prison.  A surprisingly lenient sentence that has to be considered a big win by his defense team.

Former Virginia Governor Robert McDonnell will be sentenced on Tuesday, January 6 on eleven felony counts of corruption. The federal probation department has made its sentencing recommendations and the parties have submitted nearly 1,000 pages of briefs and supporting documents. But although the legal issues have been beaten to death, a lot of uncertainty remains concerning the sentence that Judge James R. Spencer will impose.

The starting point in every federal sentencing is the U.S. Sentencing Guidelines. Determining the recommended Guidelines sentence involves analyzing and applying a series of offense characteristics, each of which has a numerical value associated with it. These calculations result in an “adjusted offense level” which, when combined with the defendant’s criminal history, yields the recommended sentencing range expressed in a term of months. (For more on the history behind the Guidelines and how they work, see my earlier post here.)

McDonnell’s sentencing involves the application of Sentencing Guideline 2C1.1, which covers corruption offenses. The probation department has run the numbers under 2C1.1 and came up with an adjusted offense level of 32. For a defendant like McDonnell with no criminal history, level 32 results in a recommended sentence of 121-151 months.

The government agrees with these calculations and has asked the judge to impose a sentence within this recommended range.

McDonnell’s defense team contends that, properly calculated, Guideline 2C1.1 results in an adjusted offense level of only 20, which would call for a dramatically lower sentence of 33-41 months. They further argue that, whatever the Guidelines range, the judge should depart from the Guidelines, sentence McDonnell to no jail time at all, and impose a sentence of probation and substantial community service.

From more than ten years in prison to probation and community service is a pretty wide range of possibilities. How McDonnell’s sentence actually comes out will depend primarily on how the judge resolves the following five questions: the first four relate to the Guidelines calculations, and the fifth is a wild card.

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#1:  What Was the Value of the Bribes?

The defense’s most significant Guidelines challenge concerns the value of the bribes. In bribery cases, points are added to the adjusted offense level based on the dollar value of the bribes that were paid – the higher the value, the more points are added. In this case, the value of the bribes is the disputed sentencing factor that leads to the single greatest increase in the Guidelines sentence.

The probation department calculated the value of the bribes received by McDonnell to be about $175,000. That includes now well-known items such as the wedding catering, Rolex watch, shopping spree and golf outings, but the lion’s share of the total is the $120,000 in no-paperwork loans that Jonnie Williams made to the McDonnells. The full amount of those loans is included the probation department’s calculation.

The defense claims that including the full face value of the loans is inappropriate. Where loans are provided as a bribe payment, they argue, the true value of the bribe is only the amount by which the terms of the loan were more favorable than a loan the defendant could have received from another source. For example, if I bribe a public official by giving him a one-year loan of $100,000 at 2%, but he could have obtained the same loan from a bank at 4%, the value of that bribe is not $100,000 but only $2,000 – the actual amount of interest the defendant saves as a result of the bribe.

Using this analysis, the defense argues that the value of the loans to the McDonnells was actually relatively trivial – less than $1,000. If they succeed in convincing the judge on this point, they will dramatically reduce the value of the bribes and, accordingly, the length of the recommended Guidelines sentence.

The general proposition makes sense and there is some law to support it, but the defense faces two problems. First, you can only compare the value of a “bribe loan” to the value of a legitimate loan if in fact the defendant could have obtained a legitimate loan. There was considerable evidence at trial about the dire financial situation the McDonnells were in. As the government points out, it likely would have been extremely difficult for them to obtain a similar loan from a legitimate source – which is probably precisely the reason they turned to someone like Williams. In such cases, courts have held it is appropriate to consider the value of the bribe to be the full face amount of the loan.

Second, the defense approach to valuing the “bribe loan” only applies to legitimate, legally enforceable loans. The “loans” from Williams involved no collateral, no paperwork, and only a verbal understanding of the terms. With no legally enforceable loan document, Williams would have been hard-pressed to collect, and certainly could not have done so without exposing the very financial arrangements that both sides wanted to keep a secret. Although both sides throughout the case referred to these payments as loans, had the case never been prosecuted it is far from clear they would ever have been repaid. If bribe payments appear to be more like gifts and are “loans” in name only, the full amount will be included as the value of the bribe.

I expect the judge to agree with the government and the probation department on this point and to include the full face value of the loans when calculating the value of the bribes.

 #2:  Did the Conduct Involve More than One Bribe?

The second defense challenge to the Guidelines concerns whether McDonnell should be given the two level increase under 2C1.1(b)(1) for conduct that involved more than one bribe, as the probation department recommends. The defense argues that this case essentially involved a single bribe scheme under which McDonnell agreed to promote Anatabloc in exchange for a series of payments. In other words, the defense characterizes the case as one continuing bribe, with installment payments spread out over a period of time.

The government counters that the evidence at trial established a number of different bribes involving a number of different things of value (payment for the wedding caterer, golf outings, undocumented loans, and more) and a series of different official acts by the Governor, all taking place over a nearly two-year period. The different bribes may have had a similar goal, but that does not transform multiple transactions into a single bribe.

What may be most significant here is that the jury actually convicted McDonnell of nine different counts of bribery-related offenses involving multiple things of value. Ultimately the number of bribes is a factual question, and the facts underlying the jury verdict make it very tough to argue there was only a single bribe here.

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#3:  Did McDonnell Lie on the Stand?

The defense’s third Guidelines challenge is to the two-level increase for Obstruction of Justice under Guideline 3C1.1. The probation department recommends this enhancement based on its conclusion that McDonnell was untruthful on the stand when he denied a corrupt relationship with Williams. The presentence report apparently identifies eight separate instances in which it appears McDonnell committed perjury during his testimony.

The defense argues that the enhancement should not be applied because McDonnell admitted to many of the facts underlying the government’s case, including his relationship with Williams and the gifts that he and his family received. He should not be penalized for testifying in his own defense, they argue, simply because the jury disagreed with McDonnell as to the legal significance of those facts.

The government counters that McDonnell did not admit key facts and simply disagree with the government as to their legal significance. On the contrary, they say, the jury verdict necessarily means that McDonnell lied about a number of critical points, such as whether he was aware of certain gifts from Williams or aware of their true value, or whether he ever did anything for Williams in exchange for the gifts.

Judges are sometimes reluctant to penalize a defendant who testifies at his own trial and is subsequently convicted. Although no defendant has a right to commit perjury, imposing this obstruction enhancement can feel like punishing a defendant for exercising his constitutional right to put on a defense. Given the probation department identification of eight instances of perjury, however, it will be tough for the defense to convince the judge that this upward adjustment is not appropriate.

 #4:  Did McDonnell Accept Responsibility for His Conduct?

The final dispute in the Guidelines calculations concerns the adjustment for acceptance of responsibility. This is a two-level reduction typically granted to a defendant who pleads guilty and acknowledges his criminal conduct. It’s rarely granted to a defendant who denies culpability, goes to trial, and puts the government to its proof. The probation department did not recommend it in this case.

McDonnell argues he should receive this two-level reduction, again based on the claim that he essentially admitted the conduct that makes up the heart of the government’s case. The flaw here is that McDonnell did not admit the single most critical fact underlying the guilty verdicts: that there was a quid pro quo and a corrupt relationship between himself and Williams. Absent his acknowledgment of this essential fact, he cannot truly be said to have accepted responsibility.

The government points out that, far from accepting responsibility, McDonnell has consistently failed to acknowledge his criminal conduct and has only admitted to exercising “bad judgment.” He has blamed others for his failings and has blamed the “gift culture” of Virginia politics but has never truly admitted his own criminal acts.

This is the longest of long shots. If McDonnell’s defense team somehow convinces the judge to give McDonnell credit for acceptance of responsibility in a case like this, they should all be nominated for lawyer of the year. In fact, I think they risk losing credibility by even making the argument.

 #5:  Will the Judge Impose a Sentence Within the Guidelines Range?

Now we get to the real wild card. Once all the battles over the Sentencing Guidelines calculations are completed, that still provides only the starting point. The judge has the power to impose a sentence outside the Guideline range – either higher (unlikely in this case) or lower – if such a sentence would be just under the circumstances and would best serve the overall goals of criminal sentencing. So the big unknown is: will the judge sentence within the Guidelines, or venture outside of them?

The defense claims that, properly calculated, the Guidelines call for a sentence of only 33-41 months. They go on, however, to argue that the judge should depart from the Guidelines and impose a sentence of probation with 6000 hours of community service and no jail time at all. This would essentially require McDonnell to work full time for the next three years at an organization such as Operation Blessing or the Catholic Diocese of Richmond, both of which have offered to give McDonnell a position.

The defense claims a number of factors support this sentence, including McDonnell’s long career of public service, lack of any criminal record, and strong community and family ties. They note that McDonnell has already been severely punished simply by the investigation, prosecution, and trial. His political career is over, his family has been publicly humiliated, and his finances have been exhausted. His experience would already serve as a deterrent to other public officials even if he did not go to jail.

These same factors, of course, apply to many high-profile public corruption defendants and do not make the McDonnell case particularly unusual. There is one additional factor, however, that might give the defense a bit more traction.

Although the gifts provided by Williams were extraordinary, the actions taken by McDonnell in return were relatively minor, such as introducing Williams to state officials and hosting a product launch event at the Governor’s mansion. McDonnell did not steer any big state contracts to Williams, or direct large sums of grant money his way, or push through legislation to benefit Williams. The evidence at trial did not establish that the actions taken by McDonnell were particularly aggressive or extensive or that they resulted in any financial harm to the Commonwealth.

The government responds that the reason this is true is simply because McDonnell’s efforts to promote Williams’ product were not successful. Had McDonnell gotten his way, they argue, Williams could have received government research grants worth millions of dollars. McDonnell should not benefit simply because, despite his best efforts, other government officials declined to follow through on his requests to research and promote Anatabloc.

Nevertheless, in terms of a quid pro quo, it’s true that while the quid here – the gifts and loans by Williams – were extraordinary, the quo – the actions taken by McDonnell in exchange – were not. That’s been an unusual characteristic of this case from day one. That doesn’t mean the conduct wasn’t bribery. On the other hand, the Sentencing Guidelines don’t necessarily take into account all of the possible variations in the actions that may be undertaken by a public official in exchange for the bribes. If I were the sentencing judge, the limited nature of the actions taken by McDonnell would give me some pause when considering whether a ten-year sentence is really called for.

The Bottom Line 

Any objective observer would have to conclude that McDonnell faces an uphill battle. The judges in the Eastern District of Virginia tend to follow the Guidelines in most cases, and Judge Spencer has not seemed particularly sympathetic to other defense arguments throughout this case. The smart money would still say that the most likely outcome is the judge adopting the probation department recommendations and sentencing McDonnell to at least 121 months. On the flip side, there seems to me almost zero chance that the judge will adopt the defense request of probation and community service.

The most intriguing question is whether Judge Spencer will impose a compromise sentence that still involves prison but is below the Guidelines recommendation. Fashioning the appropriate sentence in each individual case is at the heart of the judicial role, and the judge has a great deal of discretion. How he chooses to exercise that discretion will determine Bob McDonnell’s fate.

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