Good afternoon, and thank you for having me here today.
I want to talk to you today about the Department of Justice’s overall efforts in white collar enforcement. Who, how, and when we prosecute in the white collar and corporate fraud arena is the constant subject of news stories and commentary.
Some say we are doing too much. Some say we are doing too little.
Others say we have it just about right on corporate fraud. These are the brilliant people that advise me on my speeches.
I. Freedom and Integrity in American Business
The interests of business are aligned with the interests of law enforcement: both want to create a free and fair marketplace. The overwhelming majority of Americans – and the overwhelming majority of businesses – want to play by the rules. By rooting out corruption and fraud the Department of Justice is leveling the playing field for companies and individuals who play by the rules.
I want to be clear today that our job at the Justice Department is to prosecute criminal activity, to enforce the law, not to deter business risk-taking within the marketplace. Such risk-taking is essential for innovation and growth, and in this country one should never be considered a criminal for taking lawful chances.
There are two things that American business has always needed, and will always need, to remain highly competitive: freedom and integrity.
So much of our economic success, as a nation, is due to the amount of innovation that comes from the American private sector. Innovation bred by open markets and an unfettered business environment. The more our economy operates as a truly free market, and the less encumbered it is by government, the more it seems to soar.
That said, a free market cannot mean a free-for-all. Without limits, the essential element of fairness is lost. A free market cannot include the freedom to cheat, to defraud, or to steal. Rules and enforcement are needed to protect the playing field itself and ensure fair competition.
The importance of integrity in the marketplace is not lost on investors. The markets want and reward reliability, integrity, and transparency in American companies. Investing, after all, is itself a measure of trust. Investors don’t put their money into companies – or markets – that they do not trust.
This has been a repeated lesson of history, most recently in the corporate fraud scandals of 2001 and 2002. Looking back, we all saw how the markets responded to fraud. They responded dramatically and negatively.
The market’s reaction was a simple and telling reminder that fraud is bad for business. For that reason, prosecution of white collar cases is important to me.
Our efforts in this area promote integrity and transparency in the marketplace, which in turn helps to bring investment dollars to the United States; create an environment for economic growth; and enhance opportunities for entrepreneurs and small business owners – all of which leads to the creation of jobs and makes the American Dream a real possibility for all Americans.
II. The Department of Justice’s Commitment to Combating White Collar Crime
Some have asked whether the Department of Justice remains committed to combating white collar crime. The answer is yes. As Attorney General, protecting the integrity of business and government is a top priority of mine. I am proud of our prosecutors’ and investigators’ strong record of enforcement in this area. We will continue to pursue these cases in the field and from Main Justice.
By doing so, we are working to ensure that our corporate boardrooms are places of integrity, where the interests of shareholders are protected, not places of business deception.
Corporate America has changed in some measure as a result of highly-visible prosecutions and the new lines drawn by Sarbanes-Oxley. Boards have been restructured and reinvigorated. And audit committees have stepped up efforts to monitor and self-police the accounting practices of companies. Corporate responsibility is on the rise. There are many positive signs, including a 38 percent decline in 2006 in class action lawsuits involving securities issues, as recently reported by Stanford Law School.
Most of you are familiar with the efforts of the Department of Justice’s Corporate Fraud Task Force. Established in 2002, the Corporate Fraud Task Force has obtained over 1,100 convictions as of the end of last year. These are numbers not only of quantity, but of quality. Corporate fraud prosecutions are not easy. They are time and resource intensive. They are complex and take time to do the right way. And they are tough to litigate. They are some of the toughest cases we handle.
Some of these cases involve accounting fraud of the type we saw in the Enron and WorldCom cases. Last December, for example, the Department obtained guilty verdicts against four senior executives of Enterasys Networks, Inc. for accounting fraud after a five-week trial in Concord, New Hampshire.
We are also staying on top of emerging trends. For example, in the area of backdating stock options the Department has recently taken guilty pleas from two executives of Comverse Technology, Inc., including its general counsel and CFO. And just last month, the general counsel of the recruiting firm Monster, Inc., pleaded guilty to charges of conspiracy and fraud arising from his involvement in a scheme to backdate options.
III. Other DOJ Domestic Efforts to Preserve Market Integrity Our efforts at the Department of Justice to preserve the freedom and integrity of our marketplace go far beyond traditional corporate fraud.
We are protecting American business and consumers from a wide array of abuses, such as intellectual property crimes, cybercrime, health care fraud, procurement fraud, and anti-competitive activities.
For example, we are protecting investments in innovation by protecting intellectual property rights. From movies and music to business software, pharmaceuticals, and other hard goods, intellectual property is the engine of our economy. And where IP is stolen, business suffers.
At the Department, we have increased the resources devoted to protecting IP and correspondingly have increased prosecutions in this area. But in addition to prosecutions, we are also conducting outreach to prevent IP crimes from occurring in the first place.
We are also bringing significant cases. Just last week, in one of the first ever extraditions for an intellectual property offense, the leader of one of the oldest and most renowned Internet software piracy groups was extradited to the United States from Australia.
The indictment against this individual, Raymond Griffiths, charges him with violating the criminal copyright laws of the United States as the leader of an organized criminal group known as DrinkOrDie, one of the oldest software piracy groups on the Internet.
Prior to its dismantling, DrinkOrDie was estimated to have caused the illegal reproduction and distribution of more than $50 million worth of pirated software, movies, games and music.
Our Antitrust Division is also preserving the integrity of the marketplace and protecting fair competition by prosecuting cartels that try to fix prices, rig bids, and allocate markets. The division operates on the philosophy that the activity of cartels has no plausible justification – that it is a direct assault on the competitive process and as such undermines the very foundation of our free market.
For example, we recently prosecuted four companies for fixing prices on the world’s most commonly used semiconductor memory product for computers. These companies were fined over $700 million – the second largest amount of fines ever imposed in a single U.S. criminal antitrust investigation.
Other components of the Justice Department are hard at work as well. Our Civil Division, for example, has recently been cracking down on business opportunity scammers.
Often referred to as “biz ops,” these are companies that exploit the dreams of would-be entrepreneurs by selling phony franchise businesses like candy vending machines, Internet kiosks, DVD rental machines and other income-generating products with promises of great profits from great locations. In the last two years, we have obtained 57 felony convictions in biz ops cases.
By protecting new entrepreneurs from fraud, we are helping to create an environment that is friendly to America’s small and growing businesses, which are the lifeblood of our economy. In our Tax Division, prosecutions during the past year have run the gamut from individual taxpayers to corporate entities who have not played by the rules by failing to comply with the tax laws. Finally, we are combating environmental crime to level the playing field for those companies that play by the rules and to preserve the environment for the benefit of American business and the American people.
The Justice Department’s corporate environmental prosecution efforts have included some high-profile cases which, like most other white collar prosecutions, were committed for financial gain.
IV. Domestic and International Corruption
The Department is concerned not only with corruption of our market place, but corruption within our government itself.
We have a strong record of prosecuting public corruption cases during my tenure as Attorney General. As evidence of that commitment, we have added resources to this fight. Last year alone, the FBI added some 200 new agents to public corruption squads in field offices across the nation. We have followed the evidence in these cases wherever it has led us, and have secured a number of significant convictions and sentences.
We are also working to combat corruption around the world. For example, we prosecute violations of the Foreign Corrupt Practices Act, which prohibits U.S. companies and interests from bribing foreign officials to obtain or retain business.
The Department has substantially increased its focus and attention on this important law, and we are getting results.
On February 6, 2007, three subsidiaries of Vetco International Ltd. pleaded guilty to violating the anti-bribery provisions of the FCPA by paying approximately $2.1 million in corrupt payments to Nigerian government officials over a two-year period. As part of the plea and deferred prosecution agreements, the three subsidiaries paid a total of $26 million in criminal fines, the largest criminal fine to date in an FCPA prosecution by the Justice Department.
And late last year, we brought two other major corporate FCPA cases, Statoil and Schnitzer Steel. Statoil, a Norwegian oil and gas company, made payments to the tune of $5.2 million to an Iranian oil official in exchange for assistance in obtaining valuable oil and gas contracts. To resolve this matter, Statoil has acknowledged its criminal conduct, agreed to a $10.5 million criminal penalty and other sanctions.
The Schnitzer Steel case involved illegal payments by Schnitzer to both government-owned and private customers in South Korea and China to induce them to purchase scrap metal. In this case, however, the parent company’s cooperation with the investigation was critical to its ability to obtain a deferred prosecution agreement, and resulted in a Department recommendation that the company’s subsidiary pay a criminal fine well below what it would otherwise have received.
Our efforts to combat global corruption are not only focused on law enforcement, but also on providing assistance to our foreign law enforcement partners.
Meeting and working with my counterparts overseas is a part of my job as Attorney General. And I’ve had the opportunity to gain familiarity with different legal systems and different approaches to law enforcement.
And two things are apparent to me when I look back on that interaction. First, I’ve seen what happens in countries where corruption and fraud is unchecked: capital flight, unemployment, breakdown in provision of basic services, and, sometimes, civil unrest.
And second, I am inspired by those moments when my counterparts in another country asks for my advice, when they say, essentially, “is there a way that U.S. law enforcement can help us do our jobs better.”
And that call for legal assistance from the Department is one that we have answered, including anti-fraud and anti-corruption efforts. We send Justice Department employees to help train policemen, prosecutors and judges in countries around the world. And that includes Assistant U.S. Attorneys and FBI agents who have chosen to serve in Iraq and Afghanistan.
The Department is active in this area because we know that stronger global anti-corruption laws are essential to the integrity of global business markets. A transparent environment in the U.S. is best complemented by a similar type of business environment in other countries. Comparable anti-corruption laws make for a level playing field, which is so important for a thriving global economy.
V. McNulty Memo
As you know, we revised our corporate charging guidance earlier this year. Many of you were among those engaged in a dialogue with the Department that served as part of the backdrop for those changes. I know from my own days in private practice the importance of the attorney-client privilege. I believe the McNulty memo strikes the right balance in this area.
Given a chance to work, the new guidance to our prosecutors will achieve several goals. First, it will continue a level of transparency and consistency in our charging policy so that business leaders and their lawyers are aware of the factors that we focus on when evaluating whether to charge the corporate entity with criminal conduct.
Second, by articulating more fully those limited circumstances in which we think waiver of a privilege will play a part in that evaluation, and by giving greater guidance on how and when our prosecutors may seek waivers, we believe the guidance will assure those in the legal and business community that privilege waivers will not be sought without internal process within the Department, and will not be sought without need. When sought, waivers will be limited in scope to what is needed.
The United States is the economic envy of the world – and we are dedicated to keeping things that way. That means we’ll stand fast by the laws that keep the markets clean, but it also means we’ll stay cognizant of the private sector’s need for the oxygen that feeds innovation.
And it is important to view our enforcement efforts in that light. The efforts of the Department have helped encourage the flow of investment into our country, which benefits American businesses. Our offensive against all types of white collar crime has enhanced the international view of American companies as reliable and transparent. In other words, as good investments.
Government can create an environment for prosperity or jobs; it cannot create prosperity or jobs by itself. That’s what American business does– and we appreciate what that means to the American people.
Thank you again for having me here today.