Prosecutorial discretion – a tale of 2 companies

In my last blog, I discussed the factors an agency such as EPA would use to determine if it wants to proceed with criminal investigation. That’s step one of a two-step process. Once an agency completes its investigation, it may then refer the case to the prosecutors for prosecution.

Will the prosecutor exercise its prosecutorial discretion? That’s the second step.

The best way to demonstrate how a prosecutor decides whether to prosecute a case or not is by the following example of a tale of two companies.  The US Department of Justice issued a memo some time ago outlining the factors a US Attorney should consider in targeting a company for criminal prosecution of environmental crimes.

The memo gives the examples of two companies – Company A and Company Z. A tale of two companies.

Here is what Company A does:

1. It regularly conducts a comprehensive audit of its compliance with environmental requirements.

2. The audit uncovered as information about employees disposing of hazardous wastes by dumping them in an unpermitted location.

3. An internal company investigation confirms the audit information. (Depending upon the nature of the audit, this follow-up investigation may be unnecessary.)

4. Prior to the violations the company had a sound compliance program, which included clear policies, employee training, and a hotline for suspected violations.

5. As soon as the company confirms the violations, it discloses all pertinent information to the appropriate government agency; it undertakes compliance planning with that agency; and it carries out satisfactory mediation measures.

6. The company also undertakes to correct any false information previously submitted to the government in relation to the violations.

7. Internally the company disciplines the employees actually involved in the violations, including any supervisor who was lax in preventing or detecting the activity. Also, the company reviews its compliance program to determine how the violations slipped by and corrects the weakness found by that review.

8. The company discloses to the government the names of the employees actually responsible for the violations, and it cooperates with the government by providing documentation necessary to the investigation of those persons.

According to DOJ, Company A would stand a good chance of being favorably considered for prosecutorial leniency, to the extent of not being criminally prosecuted at all.

At the opposite end of the scale is Company Z, which does the following:

1. Because an employee has threatened to report a violation to federal authorities, the company is afraid that investigators may begin looking at it. An audit is undertaken, but it focuses only upon the particular violation, ignoring the possibility that the violation may be indicative of widespread activities in the organization.

2. After completing the audit, Company Z reports the violations discovered to the government.

3. The company had a compliance program, but it was effectively no more than a collection of paper. No effort is made to disseminate its content, impress upon employees its significance, train employees in its application, or oversee its implementation.

4. Even after “discovery” of the violation the company makes no effort to strengthen its compliance procedures.  For example, If the company had a long history of noncompliance, the compliance audit was done only under pressure from regulators, and a timely audit would have ended the violations much sooner, those circumstances would be considered.

5. The company makes no effort to come to terms with regulators regarding its violations. It resists any remedial work and refuses to pay any monetary sanctions.

6. Because of the noncompliance, information submitted to regulators over the years has been materially inaccurate, painting a substantially false picture of the company’s true compliance situation. The company fails to take any steps to correct that inaccuracy.

7. The company does not cooperate with prosecutors in identifying those employees (including managers) who actually were involved in the violation, but it resists disclosure of any documents relating either to the violations or to the responsible employees.

Under these circumstances, leniency by the DOJ is unlikely.

The only positive action by Company Z is the so-called audit, but that was so narrowly focused as to be of questionable value, and it was undertaken only to head off a possible criminal investigation. Otherwise, the company demonstrated no good faith either in terms of compliance efforts or in assisting the government in obtaining a full understanding of the violation and discovering its sources.

Which company are you? Company A or Company Z?

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