Prosecutors in the Boardroom
By Colin Ross | June 30, 2011 3:39 pm

A new collection of essays, Prosecutors in the Boardroom, explores what the book’s editors call an often overlooked practice: prosecutors regulating industries.

Rachel E. Barkow and Anthony S. Barkow of NYU Law School answered Main Justice’s questions over email about the book and the legal landscape it discusses.

Why did you think this book was necessary?

Anthony Barkow (photo courtesy Juliana Thomas)

Especially in the wake of the Arthur Andersen prosecution, we have an entered an era in which prosecutors and firms have embraced a concept we call “regulation by prosecutors.”  “Regulation by prosecutors” involves prosecutors reaching agreements with companies, under the threat of prosecution, which allow the companies to avoid indictments so long as they meet the prosecutors’ regulatory terms.  The agreements go by different names.  In the federal system, they consist of non-prosecution agreements (“NPA”) and deferred prosecution agreements (“DPA”).  In some states, they are known as settlement agreements.  When the agreements require companies simply to obey the law or pay for prior bad acts, they are not particularly noteworthy because they are incidental to the traditional exercise of executive power.

But in many of these agreements, prosecutors impose affirmative obligations on companies to change personnel, revamp their business practices, and/or adopt new models of corporate governance.  These dictates are often sweeping and some prosecutors have imposed them on industries, not just isolated companies, by bringing charges against all the key entities.  They resemble, in significant respects, the structural injunctions courts have imposed in areas like prison and school reform and the regulations promulgated by administrative agencies.

The practice of regulation by prosecutors raises a number of fundamental questions that we believe merited a book on the topic.  Perhaps most fundamentally, there is the question of how the government should seek to deter corporate misconduct and the role of the criminal law in that endeavor.  Relatedly, there is the question of prosecutorial competence and legitimacy to set regulatory terms.  What is the comparative institutional competence of prosecutors to regulate as compared with traditional regulatory agencies like the Securities and Exchange Commission?  Are there differences in the relative competence of state versus federal prosecutors in pursuing this kind of regulation?  What factors – accountability, expertise, independence, ethical concerns, efficiency or lack thereof – make prosecutorial participation in the regulation desirable or undesirable?  How could these factors be adjusted to improve the quality of that participation?  What safeguards can promote good practices in prosecutorial involvement in corporate governance, and what measures can improve coordination and minimize collisions between prosecutors and regulatory agencies?  How much power should corporate monitors have, and by what process should they be appointed?

These are fundamental questions that scholars have not widely addressed, and policymakers must address. We wanted to assemble a group of leading scholars in the field to begin that analysis.

When did the trend of having prosecutors regulate companies begin to ramp up?

Recent years have shown a dramatic increase in the use of DPAs and NPAs by federal prosecutors, rising from a mere eleven negotiated between 1993 and 2001, and 23 between 2002 and 2005, to 66 between 2006 and 2008.  Some, especially those negotiated under Chris Christie, the former U.S. Attorney in New Jersey (and now the governor), were quite controversial.  These agreements went far beyond insisting that a company cease breaking the law, and resulted in the appointment of corporate monitors with broad mandates to oversee the corporations’ compliance with the agreement — and its business practices more generally — and one even required Bristol-Myers Squibb to endow a professorial chair at Christie’s law school alma mater.  Recent efforts by the New York Attorney General’s Office under Eliot Spitzer and Andrew Cuomo also exemplify this sort of regulation-by-prosecutor.

Rachel Barkow

You write that there are serious questions about whether prosecutors are necessarily competent to also act as regulators. What is your conclusion? Is this too much power in the hands of already powerful prosecutors?

Whether a regulatory regime makes sense requires careful assessment of the regime’s costs and benefits, and the same holds true for the regulatory system enforced by prosecutors and created through DPAs, NPAs, settlement agreements, and corporate monitors. Just as regulatory reform in general must rest on reliable empirical information, so, too, must regulatory reform in the context of prosecutors’ offices.  So we need more empirical data about the effectiveness of settlement agreements in reducing misconduct, the costs of their use, and availability of alternatives, and the costs and benefits of particular terms within agreements. The book sets out the key questions that we should be asking to guide that empirical inquiry.

If prosecutors are taking on the roles of regulators, what is the point of the many existing regulatory agencies?

First, it’s not a criminal prosecutor’s job to regulate an industry. His or her job is to investigate and prosecute specific instances of misconduct. The expertise and authority necessary to regulate and prescribe rules rests in the agencies and the democratically-elected legislatures. Second, criminal prosecutors can never be the sole source of regulation of anything. There simply are not enough of them, and the penalties they mete out are at the very top of a pyramid of alternative penalties.  Selecting the right penalty for particular misconduct — whether jail time, criminal fines, civil penalties or injunctive actions, regulatory or licensing consequences, or merely market-imposed consequences — is a fact-dependent and contextual inquiry.  Thus, in order to regulate industries broadly, and calibrate  penalties appropriately, other regulatory mechanism are essential.  Finally, regulation is often required even when acts aren’t criminal.  Prosecutors are necessarily reactive – they respond when criminal behavior occurs.  Agencies, in contrast, can be proactive and address problems even when they do not rise to the level of criminal conduct.

Is this prosecutorial power one that is overlooked? Is there a need for increased education and focus on it in law schools and in the country in general?

There isn’t enough attention to prosecutorial power in general, whether in law schools, academic scholarship, or policy circles. There’s a tendency to focus on trials because that’s where the settled case law is, whereas prosecutorial decision-making — particularly as exercised in making charging and decisions about dispositions without trials — drives most outcomes in the criminal justice system. And that decision-making  is essentially unregulated by judicial decisions.  But schools, scholars, and policymakers shouldn’t just focus on trials or court decisions; this is an example of an area that demands more attention precisely because of its lack of regulation.  But at the Center on the Administration of Criminal Law at NYU, this issue receives a great deal of scrutiny.

To you, does the political success of regulatory-prosecutors such as Andrew Cuomo show that there is a public appetite for such get-tough on corporate corruption tactics? What does that mean for the evolving corporate/legal landscape?

There is absolutely a public appetite for this sort of tactic. Indeed, there is usually a public appetite for a tough-on-crime approach. And sometimes that’s the right approach. But sometimes it’s not. The trick is deciding when it’s appropriate and when it’s not.

Is the U.S. system a model that other countries should follow, or an example to be avoided?

The U.S. model has its advantages: it can ensure that prosecutors and companies avoid the destruction of a company (as happened to Andersen), but still vindicate important government and societal interests (eradicating wrongdoing). But the practice is largely unregulated, and insufficiently studied. The U.S. model has something to offer to other countries, but we — and they — must study the success and failure of this practice in order to maximize the benefits derived from it.

Anthony S. Barkow is the Executive Director of the Center on the Administration of Criminal Law at NYU School of Law. He was a federal prosecutor for 12 years, the last six of which were spent in the United States Attorney’s Office for the Southern District of New York, where he primarily prosecuted securities fraud and national security cases.

Rachel E. Barkow is a Professor Law and the Faculty Director of the Center on the Administration of Criminal Law at NYU School of Law.  She is also a member of the Manhattan District Attorney’s Office Conviction Integrity Policy Advisory Panel.


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