* Speech of Deputy Attorney General
LARRY D. THOMPSON
A Day With Justice
October 28, 2002
Good evening. It is good to be with you.
Although on a day-to-day basis I devote much of my time to the war against terrorism that we are waging both here and abroad, I know that other speakers plan to address those pressing concerns. Instead, I will say a few words about a subject near to my heart as both a prosecutor and a former white-collar defense lawyer of many years: and that is our efforts to combat the culture of greed and deceit that tolerates and propagates fraud within some of our corporations - and I would like to emphasize SOME. This aberrant corporate behavior exists in, I believe, a tiny minority of American businesses. Nevertheless, the problem is serious - and is certainly worth bringing to the attention of this distinguished group of business leaders.
I cannot, of course, discuss specific cases, but this issue cuts across individual companies and, indeed, across the boundaries between mere misconduct and criminal offenses. Pervasively corrupt companies - companies that not only employ some corrupt individuals, but have become corrupt in their culture - are a true threat to our nation's well being.
Now, as we all are so painfully aware, our financial markets have been shaken by a wave of criminal conduct at the highest levels in some American corporations. While this conduct is shocking, it is not without precedent and the administration is taking swift and certain action to punish the wrongdoers and restore confidence to investors.
Several months ago, the president established the Corporate Fraud Task Force, an interagency group that represents the vast law enforcement resources of the Justice Department, the SEC, the Treasury Department and others. We are coordinating and overseeing these efforts to root out fraud in corporate boardrooms and executive suites, and to put the wrongdoers in prison.
Those crimes have compromised the integrity of a wide range of companies -- from multi-billion dollar communications giants to tiny Internet start-ups. And because the vitality of our increasingly complex economy rests on the free and fair exchange of information, these crimes are particularly pernicious and appropriately the subject of intense - and that is what they are getting - law enforcement focus and action. They affect not only institutions, but shareholders and employees and pensioners. They harm average folks as well as major investors, Main Street as well as Wall Street.
As noted, in discussing these crimes, it is important not to tar with too broad a brush the overwhelming majority of corporations that operate morally and productively in the best and highest interest of their shareholders and the country. Yet, I believe you will agree the breadth and extent of these recent scandals do demonstrate intolerable legal and ethical misdeeds that require a comprehensive response.
While we have focused the brunt of our actions on individual corporate criminals, there is a significant category of wrongdoers who cannot be imprisoned, but are nonetheless crucial targets of our efforts. Although it should be done sparingly, we will not hesitate to prosecute corporations themselves when the circumstances warrant it.
In making the decision to seek an indictment against a corporation, we consider a number of factors:
- The company's history of wrongdoing,
- its response to regulatory actions,
- its reaction to the criminal conduct committed by its employees, including the cooperation with the Government's investigation;
- the level within the corporation at which the crimes were committed or condoned, and
- the pervasiveness of the criminal behavior within the organization.
Assessing these factors opens a window into the firm's culture. I am often asked, "Why are these corporate scandals happening?" I don't know - but my experience tells me we do need to look at corporate cultures. As those of you who work in large corporations know, companies develop their own methods that guide employees' thoughts and actions. That culture is a web of attitudes and practices that tends to replicate and perpetuate itself beyond the tenure of any individual manager. That culture may instill respect for the law or breed contempt and malfeasance. The organization itself must be held accountable for the culture and the conduct it promotes.
Civil sanctions simply do not have the power of criminal penalties to concentrate the corporate mind and change corporate culture. Large business organizations, particularly public companies that are already regulated in myriad ways, sometimes have the disappointing tendency to view civil sanctions as merely the "cost of doing business" - a cost that can be passed on to customers and shareholders without lingering effect in the management suite and the board room.
Indeed, without corporate criminal liability, there would be no effective deterrent to a corporate culture that - expressly or tacitly - condones criminal conduct. Instead, corporations could merely appoint a "vice-president in charge of going to jail" who would serve as a whipping boy for the collective acts of the organization.
Let's talk about the role we lawyers may play in these times of corporate scandals. Lawyers, both outside and in-house counsel, can play a major role in this corporate culture - both for good and for ill. The attorney's role is to take an independent look with some healthy skepticism at the corporation's conduct - where it is right to keep it right, and where it is not, to make it right. The pressure can be intense to go along, as some accountants have sometimes gone along, with a company's improper practices on the theory that they are only "cutting corners." But, lawyers have a responsibility to their clients, to the profession and to the public to view such practices in the cold light of reality with an eye toward how they may look splayed out on the front page in the unforgiving glare of unfavorable public attention.
In my private practice, I had many opportunities to see up close how corporations and their counsel dealt with serious legal issues - some of which posed a grave threat to the health and well-being of the company. What I have seen is lawyers in such situations tend to get into trouble, I believe, when they make one or both of the following mistakes:
First, the attorneys forget who their client is. We all know from the first year of our law school corporate law class that the client is the corporate entity. Not the CEO or General Counsel who hired you, and not even the Board of Directors. Yet a recent survey conducted by the American Corporate Counsel Association that is very disturbing found that more than 20% of general counsels felt that their corporate culture emphasized "senior management" as the client. That is a minority view, but a large enough minority to get plenty of companies into trouble.
Second, some attorneys fail to give corporate clients their independent professional judgment. That phrase "independent professional judgment" is, and ought to be, redundant. A professional lawyer, by definition, is a person retained to render independent judgment under the law. Indeed, among the ethical considerations that we, as attorneys, are urged to respect is the admonition that our professional judgment "be exercised solely for the benefit of the client and free of compromising influences and loyalties."
Giving independent judgment is more important than job security. Independent judgment is the only thing lawyers, as professionals, have to offer. Think about this: Without it, we are mere hired guns who trade off of the very integrity of our profession. What we see is that in many major corporate fraud cases, there are professionals - accountants, investment bankers, and, not least, attorneys - who were either complicit or negligent. We need to find out who they are and take whatever measures we can to answer the question that always comes up: Where were the professionals?
In the recently enacted corporate reform law, Congress ordered the S.E.C. to devise rules requiring attorneys to report evidence of misconduct to the general counsel and, if he or she does not fix the problem, to an independent committee of the board. These rules will make formal a process that should have already been occurring in well-run companies. These rules will give the Department yet another mechanism to closely watch the conduct of professionals advising the corporation. And where appropriate, we will not hesitate to hold them, as well as their clients, accountable for fraud.
We will press ahead in these efforts and look forward to your continued cooperation and support. Our goal is to separate the offenders from law-abiding companies. In many cases, that separation will be physical and for an extended term of years. My hope is that comprehensive enforcement efforts will restore investor confidence in the integrity of the market by demonstrating that financial criminals will pay - and they will pay with more than financial penalties.
I believe we are on the right track but we will not be complacent. As Will Rogers once said, "even if you're on the right track, you'll get run over if you just sit there." And we will not just sit there.
*NOTE: Mr. Thompson frequently speaks from notes and may depart from the speech as prepared. However, he stands behind the speech as presented in written format.