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Case 1:05-cv-00999-MMS

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EXHIBIT C
Memorandum from Deputy Attorney General Larry Thompson to all United States Attorneys

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Office of the Deputy Attorney Oenerei U,6, Department of Justice

The DepulyAttorney GerlePal

bVash_gton, D, C. 20530 danuary 20, 2003

___E,,MOP.A_DUM
TO: Heads of Department Components United States Attorneys L_rry D. Thompson Deputy Attorney GenerN

FROM:

SUB3ECT: P_lnctpl_sof Federal P_s_cu_on of Bus_ness OrgaNza_ons As the Corporate Fraud Task Force has advanced in its mission, we have con_onted certain issues in the principles for the federal prosecution of business organizationsthat require revision ir_order to enhance our efforb_ efforts against o0rporate fraud. While Jt wlil be a minority of cases in whic'na corpora_on or padnership is _se_ subjected to criadnal charges, prosecutors and investigatem in every matter involving business cdmss must assess the merits of saeldng g_e canviction of the businessentity itse¢ Attached to this memorandum are a revised set of principlesto guide Department prosecutors as they make decision whether to seek charges against a businessorganization. These revisions draw heavily onthe combined efforts of the Corporate Fraud Task Force and the Attorney General's Advisory Committee to put the results of more than three years of experience wi_ the principlesinto practice. The main.focus of the revisions _sincreased emphasis on and scrutiny of t_ authenticity of a corpom_n's cooperation. Too olten business organizations, while purpor_ng to cooperate with a Department investigation, in fact take steps to impede the quick and effective exposure of the complete scope of wrongdoing under investigation. The revisions make clear _at such conduct should weigh in favor of a corporate prosecuUen. The revisions also address the efficacy of the corporate governance mechanisms tn place v_htn a corporation, to ensure that these measures am truly effective rather _an mere paper programs, Further expe_ence with these principles ¢naylead to addittonat adjustments. ! look foP,yard to headng comments about their operation in practice. Please forwald any comments to Christopher Wray, the Principal Associate Deputy Attorney General, or to Andrew Hruska, my Senior Counsel

Federal Prosecution of Busi,nes_s.,Organlzations_ L Charging a Corporation: Genera| A. General Principle; Corporations should not be treated lenientlybecause of their artitic_a|nature nor should they be subject to harsher tTeatment. Vigorous enforcement of the criminal laws against corporate wrongdoers, where appropriate results in great benefits for law enforcement end the public, particularly in the area ofwNte collar cdme. Indicting corporations for wrongdoing enables the government to address and be a force for positive change of corporate culture, alter corporate behavior, end prevent, discover, and punish white color crime. B. Cornmeal in all cases invoMp_ corporate wrongdoing, prosecutorsshould consider the factors discussed herein. First and foremost, pmsecutom should be aware of the important public beneffis that may flow from indictinga corporation in appropriate cases. For i_stance, corporationsare likely to take immediate remedia_steps when one is indicted for cdminal conduct that _spe_vas'_ve throughout a pa_uiar industry, end _hus an indicbnent h_:/Iwww.usdoj.gov/dag/cfff/c_rpo_te gu_deEmesoht_ 2/11/03

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Orgnr_izatior_

o_en providese unique opportunityfor deterrence on a massive scale, in addition, a corporate indictment may result in speciF_ deterrence by changing the culture of the indicted corporation and the behavior of its employees. Finally, certain crimea thai carry with them a substantialrisk of great public harm, e.g., envkonmental crimes ot tinancial_auds, are by their nature m_t Ifkelyto be committed by businesses=and there may, ¢here_re, be a substantlalfede_at interest in indictingtho c_,'porationo Charging a corporation, however, does not mean that indtvidua_ directors, off'cars, empioyeeso or shareholders ahouid not apsebe c_rged. Prosecutionof a c, rporation is not a substitute for the pn_secution of o tribally cu_p_!e tnd_v_Llals within or wiL,_ou_he ¢orporat_on. t_uss t a corporation c_n _t on|y through individuals, |mposttio_o!' individualcrimina_Eability may provide the strongest deterrent against future corporate wrongdoing. Onty rarely should provable inffw_dualculpab_llty not be pursued, even in the face of Offersof corpoeate guiltypleas. Oot'porationsare "tegal persons," capable of s_in_ and being sued, and capable of oommit_ng _es. Under _e doctdne of mspondeat _upedor, a corporation may _ held ¢dmlP, liable for the itlegai acts Ofi_sdirects, ally officeCs,employees, and agents. To ho|d a corpora_n liable for these aeons, the government m_st establish _at gle corporate agent's actions (i) were within the scope of his duties and (ii) were _ntanded, at least in part, to benefit the corporatlon,in al_ cases _nvotving w_ngdolng by corporate agents, prosecutors should coP.sider the corporation, as weU as the responsible individuals , as potential criminal f_rgets. Agents, however, may act for mixed _rasorm - both_or se|foaggrar_ement {both dire_t and indirect) and f_r _hebenefit of the corporation, and a corporation may be held liable as long as one motivation of its agent is to benefit the corporation, in United States Vo A_tomated Medical Laboratories, 770 F.2d 399 (4th Cir. _985), the court affirmed the corporation'sconviction for the actions of a subsid_ar]'s employee despite its claim that the employee was acting for his own benefit, namely his "ambitious nature and his desire to ascend'the corporate ladder." The court slated, "Pattucciwas cleady acting in part to benefit AML since his advancement within the corporation depended on AML's.well-being and itstaok of ditficulties with _ FDA." Similarly, in United States v. C,/ncoffa,689 F.2d 238, 24t-42 (1 =Cir. 1962), the court held, "criminalIk_bil_dy may be imposed on the corporation corporation only where the agent is acting within the scope of his employmenL That, in turn, requires that the agent be perforating acts of the kind which he is authorized to perform, and those acts must be motivated - at least in part - by an tntet_tto benefit the corporatio.n?Applying this test, the court upheld the corporation's convidton, notwithstandingthe substantial personal benefit reaped by _ miscreant agents, because the fraudulent s¢,hemerequired money to pass throughthe corporation's treasury and the fraudulently obtained goods were resold to the corporation's customers in the corporation'snam_ As the court concluded, "Mystic-not the individual defendants-was making monw_ by sellingoil that it had not paid for.= Moreover, the corporation need not even necessar'dy profitfrom its agent's sct_onsfor it to be held:liabte, in Automated Medical Laboratories, the Fourth Circuitstated: [B]emdit tS not a _¢tchstone of cdminal cooperatetiabitity; benefit at best is an evidential not an operative, faeL" Thus, whether _he agent's e_lione ultimately redounded to the benefit of the corporation is tess significant than whether the agent acted with the intent to benefit the corporation. The basic purpose of requiring that an agent have acted with the intent to benefitthe oorporation, however, is to insulate the ¢orporalton from cdmlna| liability for actions of its agents which be inimical to the interests of the corporation or which may have been undertaken solely to advance the interests of that agent or of a party other than the corporation. 770 F,2d at 407 (emphasis added; quoting Old Monasfe/y Co. v. United States, 147 F.2d 905, 908 (4t_ Cir,}, cert. denied, 326 U,S. 734 (1945)) .... |l. Charging a Corporation; Factors to Be Considered A. Genera( Principle: Generally, prosecutorsshould apply the same factors in determining whether to charge a coq_ratJon as they do with respect _o individuals. See USAM _ 9-27.220, et seq. Thus, the prosecutor should weigh all of the fi_ctorsnormally considered in the sound exemise of pmsecutorialjudgment: the sufficiency of the evidence; the likelihoodof success at trial,; the probable deterrent, rehabilitative, and other consequences of . conviotion; and the adequacy of nonc_nlnal approaches. Sae ld. However, due to the nature of the corpo_te "person," some additiona_fa_ors are present. _nconducting an investigation, determ!ning whether to bring http://www.usdoj.gov/d_cfl_eorporate_g_de]ines.h_ 2/11/03

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charges, and rv_gotJating plea a_reamen_, prosecutors shoutciconsider the foJlowing factors in reaching a de,is{on as to the proper treatment of a corporate targel:
Z" ".i

2. the peP_slveness of wrongdoing within the corpoPa_ion,ncfucfft_ _ne cc_p_ci_, in, o_" i con_tion wrongdoing by corporate managemen_ (see secUon iV, In_};

of,

·_. the corporation's time_ and voluntary clisctosureof wrongdoing and its willingness to cooperate in _e lr_stig_don of its agents, _ctuding, if _ecessaPj, the watv_ of corpoP_te_ttomey_le_t _d wo_ p_¢_ p_otec_on(see section V_, Infr_); 5, the ex_stenc_ and _dequacy of _e corporation'soc_piianc_ program (_e sec_c_ _, ]nfm);

6. the corporation's remedt_ a_ons, includingany efforts to implemen_ an effective corporate ¢ompti_ce program or to _Wove an e_st_n_ oct, to replace responsible ma_Jemen_, to dlsdpiine or terminate wrongdoers, ¢opay restitution, and _ coopera_e with the relevant govemmen_ agencies (see section Viii, infm); 7. collateral consequence=s,including disproportionateharm to shamhctders, pension holclersand employees not proven pemonally culpable and impect on the public arising from the pmsesUlion (_e section _X, _'dm); end 8. _e adequacy of the prosecution of ind_iduais responsible for the corporatiods malfeasance; 9. the adequacy of remedies such as d_v_or regulatory enforcement actions (see soct/on X, infra). ELComment: As wi(h the factors relevant to ¢ha_ging natural persons,the foregoing factors are intended to provide guld_noe rather than to mandate a pad_cularresult. The factors listed in this section are intended to be illustrative of those that should be considered and not _ comptete or exhaustive list. Some or _Uof these factors may or may not apply to specific cases, and in some cases one factor may override a]| others. The nature and seriousness of the offense.may be.such as to wan'ant prosecution regardless of the other factors. Further= national law enforcement polk_leein various enforcement areas may require that more or less weight be given to certain of these factors than to others. in making a decision to charge a corpomtio,, the prosecutor generally has wide latitude in determining when, whom, how, and even whether to prosecute for viola_ons of Federal cdminal law. in exercising that discretion, prosecutors shouldconsider the following general statements of principtesthat summarize appropriate considerations to be weighed and desirable practices to be followed in dischargingtheir pmseoutoriat _esponsibll'd_s.in doing so, pros_.liors should ensure tha_the general purposes of the cdminal raw - assurance of wan-anted punishment, deterrence of further criminal conduct, protectionof the public from dangerous and fraudulent condud¢,rehabilitation of offenders, and restitution for victims end affected communities - are adequately met, taking into account the special nature of the corporate "person." III. Oharglntl _ Co_ora6on: $10_¢ta! Policy Concerns

A. General Principle: The nature and seriousnessof the cdme, includingthe riskof harm to the public _0m the odin|hal conduct, are obviouslyprimary factors in determining whether to charg_ a corporation, in addison, corporate conduct, particularly that of national and mulS-national corporations, necessarily interse_ w'dhfedera_ economic, taxation, and criminal law enforcement policies, in applying these principk_s,prosecutors must consider the practices and por¢ies of the appropriate Division oEthe Department, and must comply with lhose poiicies to the extent required.

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B. Comment: in determining whe|her to charge a corporation, prosecutors should take into account federal taw enforcement prioritiesas dfscussedabove. See USAM § 9-27-230. In addition, however, prosecutors must be aware of the spedfio pol|cy goa|s and incentive programs established by the respective Divisions end _eguiatory agencies. Thus, whereas natural pec'sonsm_y be given incramerlta! ¢_gcees of credit (ranging from immunity to lesser charges to sentencing considerations) for turning Ehemselvesin, making statements against their penal interest, and cooperating in the government's investigation of their own and others* wrongdoing, the same approach may not be appropriate in a, circumstances wiU1respect to cotpora_onsoAs an exampIP_it is entirety proper in many investigations for a prosecutor to consider the corporation's pre-_dictmen_ conduct, eog.,voiuntary disclosure_cooperation, rsmediatI_ orrestit_lon, _ dete_in_9 whether" to_ an tndictmen_L H_wever, this would not n_essari_y be _ppropd_e in sn _zntitrustinvestigaiJon, in whP_h_titrust _olations, by defmilion, go to · e heart of the corporation's business and for whioh the Antitrust Division has therefore established a _r_ Ipoli_, understood in the business community, _at credit should not be given at the cha_glng stage for a cornptiar_ program and that amnesiy is available on_ to the first corporation to mare full discioaure to the government. As another _xample, the Tax Division has a strong preference for prosecuting responsible indhdduals, rather.than entitiea, _ ¢ori0ora_e taxoffenses. Thus, in determining whether or not to charge a corporation, p_cutors should co,suit wi_h the C_m_, Artiest, T_, and F_vkonmentei ar_ Natural Resources Di_lo_, _pproprlats o_ r_quired.

A General Principle: A corporationcan only act _rough natural persons, and it is therefore held responsible for the acre of such persons faidy attributable to it, Charging a coqx_i_on for even minor miscor_uot may b_ appropriate where the wrongdoing was pervasive and was unde_ken by a large number of employees or by aB · e employees in a particular rote within the corporation, e.g., salesmen or procurement o_cem, orwas condoned by upper management. On the other hand, in certain limited circumstances, it may not be appropriate to impose liability upon a corperallon, pad_ulady one with a compfiance program in place, under a strict respondeat supedortheory for the single isolated act of a rogue employee. There is, of course, e wide speclmm between these two extremes, and a prosecutor should exerdse sound discretion in evaluating the pervasiveness of wrongdoing within a corporation. 8. Comment: Of these faot_ themost important is the ooleof management. Although acts of even k:w-level employees may result in criminal liabirdy,a corporation is directed by its management and management is responsible for a corporate culture in which criminal conduct is either discouraged or tacitly encouraged. As stated in commentary to the Sentencing Guidelines: Pervas'rveness[is] case specific and |wilt] depend on the number, and degree of respons_billty, of kcflviduals [with] substantial authority who participated in, condoned, or were willfully ignorant ofthe ... offense. Fewer individuals need to be involved fore finding of pervasiveness if those individuals exemised a relatively high degree of authority. Pervasiveness can occur either within an organization as a whole or within a unit of an organization. USSG §8C2.5, cornmeal (n. 4). V. Charging a Corporation: The Corporation's Past History A General Principle: Pmse_'tors may consider a corpor_ion's histo_ of similar conduct, including prior criminal, civ'd,and regutatory enforcement actions against it, _ determining whether to bring criminal cha_ges. B. Comment: A coq0omtion, l_e a natural person, is expected to team from _ mistakes. A history of sknUar conduct may be probative of a corporate _Jlture that encouraged, or at least condoned, such conduct, regardless of any compliance programs. Cdminal prosecutionof a corporation may be particularly appropriate where the corporation previously had been subject to non-criminal guidance, warnings, or sanctions, or previous oimtnal charges, and yet it either had not taken adequate action to prevent future urdawfu_condu_ or had continued,to engage in the condu_ _ spite of the warnings or enfomement actions taken against it. in making this detam_ination, the corporate structure itself, e.g., subsidiaries or operating divisions, should be Ignored, and enfomement actions taken against the corporationor any of its divisions=subsidiaries, and affiliates shoutd be considered, See USSG § 8C2,5(c) & comment (n. 8).

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_. Charging a Corporation: Cooparat_on and Ve_u_ry

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A. GeneraJ Pdndple: in determiningwhether to charge a corporation, that corporation's timely and voluntary disclosure of w_ongdoing and itswil_ngn_s to cooperate _th the g_vernn'_t's investigation may be reievar_ factors, tn gauging the extent of the corpo_on's ccx_peraticm, prosecutor may consider the corporation's the wiflingness to ldentify the culpdtswithin the corporation, Inc|uding senior executives; to make wffnesses available; to disclose the complete resu_ of Es tnterrm_inves_gatlo_; and to waive attorney=c_ient and work produc_ preston, B. Comment: _n invcstlg_ng wrongdoing by or _thin _zcorporation, e prosecutor _slikely I_ encounter severe| obstacles resulting from the nature of the coq_or_on itse_, ff will o_en be difficultto determine whic_ lndtvidua_ taok which adlOn on beha_ of the ¢orporaaan. Lines of authorityand respansibii_ may be shared among operating dwtsionsor depedmente, and records and personnelm_y be spre_ throughout the U_e_ SLates or even among several countries. Where the ¢dminal conduct co_nued over an extended period of time, the culpable or _'mwlec_geab|e pemonnetmay have been promoted, transferred, or tired, or they may h_ve qe_ or re_Ired. Accordingly, a corp_ra_on's coopera_on may be c_t_cs|_nidentifyingthe culprits:and |ocating re|event or(danes. _n some ¢lr©urnstsntes,_ere_ore, granting _ corpor_ion lr_¢nun_ _ emne_ or pretdeddiveie[on may be considered in the coupe of the government's investigation, in such circumstances, prosecutom should refer to the principles governing non-prosecution agreements generelly. See L_AM § 9-27.600_50. These principles pern_ eznon prosecution _greement in exchange for cooperation when a coclpomtien's "timely coopemLlon appea_s to be necessary tO the I:_Jbtic interest and other means of obtaining the desired cooperation are unavailable or woukt not be effeddve.= Prosacutom shouldnote that in the case of national or mulamationei corporations, rmdti-dtstrict or global agreements may be necessary. Such agreements may only be entered into with the approval of each affected disffictorthe appropriate Depedment of_cial. See USAM §9.27,641. in ecldition,the Department, in conjunctionwith regulatory agencies end: other execu_ve branch departments, encourages coq_omtions, as pad oftheW compl'mnceprograms, to conduct i_amal investiga_ons and to _sclose their findings to the appropriate autho#des. _=_me agencies, suc_ as the SEC and _e EPA, as well s._the Depadment's Envlronment_ and Natural Resour_ Div|ston, tmva formsi voluntary disclosure programs in which se_reporling, coupled wiffi remedialJonand add'r_onaltritsda, may qualify the corpora_on for amnesty or reduced sanctus, z Even in the absence of a fom_l program, prosecutors my constder a corporation's tirnsh/and voluntary disclosure in evaluating the adequacy of the corporation's compliance program and its managements co_ent to the cemplianos program. However, prosecution and eo=nomlc potties specifloto gm industryor statute may require p¢osecutionnotwithstandinga corporation's _llingness to cooperate. For example, the AnfftrustDivision offers amnesty only to the first corpomffon to agree to cooperate. T]ds creates a strong incentive for corporations parfidpating in anti.competitive conduct to be the first to cooperate, in edison, amnesty, immunity, or reduced aanctions may not be appropriate where the corporalion_ business is permeated with T_au_ or other crimes. One r_tor the prosecutor may weigh in assessing the adequacy of a colpom_on's cooperation is the con_letenees of its disclosure including, if ne_ssaty, a waiver of the atlomey-client and work product pmtectiona, both with respect to its internal investigation and with respect to communic_ons between speci_c officers, direc_omand employees and counsel. Such waivam permit the government to obtain statements of possiblewitnesses, subjects, andtargets, without having to nego_ate individual cooperaffon or immunity agreements, in addition, they are often cdticaiin enabling the govenvnent to evaluate the completeness of a corporation's voluntary disclosure and ccoperalfon. Prosecutors may, therefore, request a waiver in appropriate drcurnstances._ The Depedment does not, however, consider walver of a corporation's attorney-client and work product prote_en an absolute requhoment' and prosecutors should consider the willingness of a corporationto waive such proteddonwhen necessary to provide timely and complete informaf_onas one factor in evaluating the corporation's cooperation. Another factor to be weighed by the pmseG_or is whether the corporation appeam to be prote_ng its _ulpebte emp_oye_s and agente_Thus, whUecases will differ depending on the cimumstances, a corporation's promise ofsupport to oulpabie employees and agents, either through the advancing of attorneys fees,_ throu_ retaining the employees without sanclionfor their misconduct, or through providing information to;_he employees about the govemmen_ lnvesligation pursuant to a joint defense agreement, may be considered by the prosecutor prosecutor in weighing the extent and value of a corporation's coopera_ion_ By the same token, the prosecutor http://www.usdoj .gov/dag/_/corpor_..gu_del.ines._tm 21! _I03

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should be wary of attemp_ to shield eo_orate officers end employees _rn corporation to piea_ gui_.
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lial_i_ by a wil|ingness of the

Another factor to be weigh_ by the prosecutor is whether the co_on, wht|e purpo_ng to coopsrete, has engaged in conduct thaL impedes the inves_on (whe_er or not _sing,to the _vei _ ¢drn_na_ obst_ction). Examp|es of _uc_hconductinclude: overly broad asseCdons of corporate represenl_dion of employees or _'o_me_ employees; |napprop_ate dkect_oflsto errCloyees or their counset, such as directlons not to coopon_te openly ar_l futly with _s investigation including, _r examp_eo_e dire_on to dec_ne to be _n_e.P._|_ed;_k_g presentations or subr_s_io_s _at contain _is_eadi_ asse_ons or emissions; incomp_¢e or deJayed p_oductio_of records; _nd Pa||ure_o pmmp_ disctoseillegal conduct known to the corporatJorL Rnagy, a corporals offer of cooperation does not automatically erotic i_to impurity/rein pmsec_or_ A ¢o_atJon should not be atde to escape i_ai_ti_ merely by offering up _tsdirectors, o_cers, employees, or egents as In lieu of its own prosecution. Thus, a corporation's w_ilingnessto cooperate is merely one reisva_t _a_or, that needs to be c_nsidered in conjun_o, wi_ the other factors, padJculady those re_ati_g to the corpor_on's p_s_ history ar_ _e _o|eof m_nagemer_ in the w_'o_gdoing. Vii. Cha_ging _ Corpora_: Co_p_ Co_p_Jan©e Pr_gPa_s

A_ General Principle:Compliance programs are established by corporate man_ement to prevent _nd to detect rdsconduct sr¢l to ensure th_ co_porsteac6vities are conducted in accordance with _fl applicable _n_ end civil laws, eegula6or_s, nd rules. The Depar_e_ e encourages such corporate self-policing, including voluntary disclosmes to the government of any problems that a corporation discovers on its own; However, the existence of a compliance program is not sufficient, in and of itself, to justify not charging a corporation for ¢dmina! cenduct undertaken by itsofficers, directors, employees, or agents. Indeed, _e commission of such cdmes in the face of a comptiance I_'ogram may suggest that the corporate management is not adequately erfforcingits prog_m, in addi6on, the nature of some cdmes, e=g., an_Just violations, may be such that national law enforcement policies mandate prosecutions of corporations notwithstandingthe existence of a compliance program.
(_. ",.,")

B, Comment: A corporate compliance program, even one specifically prohibiting the very corldu_t in questlon, does not _beolve the corporation from criminal liability under b_edoctrine of respondeat superior. See United _"tates v. Basic Construction Co., 7t I F2d 570 (4_ Cir= 1983) Ca corporation may be held criminally responsible for'angst violations comndtted by its employees ifthey wsm ad, Jngwithin the scope of their authority, or _pparent authority, and for the bene6t of the corporation, even if... such acts were against corporate policy or express |nstmc_ons."). in United States v. Hilton Hotel_ Corp., 467 F._d 1000 (g_ Cir. 1972). ced. denie_ 409 U,S. 1125 (_973), the Ninth Cir_it affirmed entflrust liability based upon a purchasing agent for a single hote_ threatening a single supplier with a boycott unless it paid dues to a iocat marketing assodation, even though the agent's actions were contrary to corporate policy and directly against express instructions from his superiors. The court reasoned that Congress, in enacting the Shen_n _b_ust Act, "intemk_dto impose liabi_ upon bus_nes s entitles for the a_s ofthose to whom they choose to delegate the conduct of their aft'aim, thus stimulating a maximum effort by owners and managers to assure adherence by such agents to the requirements of the Act?s.ff condiuded that "general policy statements" and even direct instm_t_onsfrom _e agent's superiors were not sufficient; "Appellantcould not gain exculpation by issuing general instructionswithout undertaldng to enforce those instructions by means commensurate with the obviousrisks._ See also United State_ v. Beusch, 596 F.2d 871,878 (get Ok'. 1979) C|A] corpora_on may be _iable for the acts of its employees done contrary to express instructionsaP_lpc|ides, but .., the existence of such lnstmd]ons and pormies may be censidered i_ determining whether the en_loyee In fact acted to bene_ the corpor_tion,=); _ States v. American Red'rotor& _andard San/tary Corp., 433 F2d 174 (3 _ Cir. _970) (alarming convi_on of corporation based upon its officer's parlicipation in pdce-flx|ngscheme, despite corporation'sdefense that officer's conduct violated its "dgJd antifraternization policy" egainst any eoclalizat_on(and exchange of price information) w_ its composers; WVhen the act of the agent is within the scope of his employment or his apparent authority, the corporation is heedlegally responsible for it, although what he did may be contrary to his actual instm_ons end may foeunlawfuL"). While the Department recognizes that no compliance program can ever prevent all criminal ac_vit'f by a corporation's employees, the critical factors in ewtualing any program are whether the program is adequa_eJy designed for maximum effectiveness in preventing and dete_ng wrongdoing by employees and whether corporate management is enfo_ng the program Oris tac_ encouragin_ or p_essud_g emptoyees to engage in ·J/www._ogov/dag/ct_ffco_porst¢ g_idet_es._tm

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misconduct to achieve business objectives, The Department has no formal guidetlnes for corporate compliance programs. The fiJndamentaiquestions any prosecutorshould ask ere: =|s the corporation's _mpllance program welt designed?" and "Doesthe corporation'scom#Mnce program work? _ in _nswedng these ques_ons, the p_secutor shou}d cor_kJe_ |he _mpmhensiveness of the compliance program; the extent _nd pervas_eness of_e ndmtnai condu_ the number _nd _vel of the corporate empMyees Jnvohtsd; he t seriousness, duration, and frequency of the r_sconduct; end any remedial a_ons taken by the corporation, including restitu_on, dfscipiina_ aciion, and revisions to _orporate compliance progmn_, s Prosec_ors should atso consider the promp_ess of any disciQsureof wrongdoir_ to the government end _he corpomtion°s cooperation in lhe government's inv@tion, in evai_alJng compliance programs_ prose_iOes may con_der whether the ¢orpora_bn has established corporate governance mechanisms _at can effe_vely detect anti prevent misconducL For exam#e, do _e ¢orpora_on'sdirectorsexercise independent review over proposed corporate actions rather than unquestieninglyratifying officers'recommendations; are the d_mctorsprovided with lnfi_maUsn sufl_dsnt to enable the exercise of independent judgment, are internal audit functions conducted at a levet sufl_ent t_ ensure their _ndepsndence an_ accuracy and have the dired_s established an in_orrna_ion and tapering system in the organiz_n reasonable designed to provide management and _he beam of directo_ with timely and accurate information suf_dent to allow them to reach an informed decision regaMing the orgar_zation's compliance with the _w. in m: Caremark, 698 A.2d 959 (DeL Ct. Chan. 1996). Prosec_ors sh_uM there_re attempt _ detern_ne whether a corporation's comp_ancs program is merely "paper program _or whether it was des_gnsdand implemented in an effective manner, in addition, p_ors shoulddetem-_ne whether the corporationhas provided for e staff std_cient t_ audit, document, anehtze, add utilize the results of the corporation'scompliance efforts, in addition, prosecutors should determine whether _e corporation'sempfoyees are adequately informed about the compliance program and are convinced of the corporation's commitment to it. This will enable _e prosecutorto make an informed decision as to whether _he corporation has adopted and implemented a buly effective compliance program that, when consistent with other federal law enforcement policies, may result in a decisionto charge only the corporation's employees and agents. Compliance programs should be designed to detect the padicular types of mlscenduct most likely to occur in a particular corporation's line of business. Many corporations operate in complex regulatory environments outside the normal experience of cdndnal prosecutom. Accordingly,pmsecu_om should consult with relevant federal and state agencies with the expertise to evaluate the adequacy of a program's design and implementation. For instance, state and federal banking, insurance, arid medical boards, the Deportment of Defense, the Department of Health and Human Services, the Environmental Pmte_on Agency, and the _ecurities and Exchange ComwJsetonhave considerable experience with compliance programs and can be very helpful to a prosecutor t_ evaluating such programs, in addison, the Fraud Section of the Cdmina! Division, the Commercial Litigation Branch of the Civil Division, and the Environmental Cdmes Section of the Env_ronmentand Naturat Resources _sion can assist U.S. Attorneys' Offices in finding _e appropriate agency office and in providing cop_es_f compliance programs that were developed in previouscases. Ytil. Charging a Corporation: Resection a,d Remedtadion

A. General Principle: Although neithera corporation nor an individual target may avoid prosectrl_n merely by paying a sum of money, a prosecutor may considerthe corlporation'e willingness to make restitution end steps already taken to do so. A prosecutor may atso cor_ider other remedial actions, such as implementing an effective corporate compliance program, improvingan existingcompliance program, and discipliningwrongdoers, in determining whether to charge the corporation. B. Comment: in detern_ning whether or not a corporation should be prosecuted, a prosecutor may consider whether meaningEd remedial measures have been taken, induding employee discipline and _uii ras_tutionJ A corporation's response to misconduct says much about its willingness to ensure that such misconduct does not recur. Thus, corporations that fully recognizethe seriousness of their misconduct and accept responsibilityfor it should be taking steps to implement the personnet, operational, and organizational changes necessary to establish an awareness among employees that criminal conduct will not be tolerated. Among the factors prosecutorsshould consider and weigh am whether the corporationappropriately disciplined the wrbngdoers an_ · sdosed information concerning their lilegal conduc_to _e government
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Employee disciplineis a difficulttask for many corporationsbecause of_e human element involved and sometimes because of the seniority of the employees concerns:|, _rnile corporations need to be fair to their employees, they must atso be anequ_voc_flyco_ed, at el! levets o_the corporation, to the high_st standardsof http://wwwol_sdoj.g_/dag/cfl_Tco_atc gtfide_in_._,m 2/_ _/03

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|eg_Jand ethic_sl ehavior. Effective internal d|scipl!ne can be a powed'uldeterrent against improper behavior b by a corporation's employees, tn evaluating a corporation's response to wrongdoing, prosecutors may evaluate the wili_ng_ess of the corporation to discipline oulpable employees of a8 ranks and the adequacy of the discipline imposed. The prosecutor should be satisfied that the corporation's Toc_ is on the _ntegrity and credib_li_, Of its remedial and disciplina_ measures ra_ than on the protection of the wrongdoers. in additionoemployee discipflne, two o_er Pacto_ used in evaluating _ cmpo_tion's rernedlst t eK_rts ars re.s_tution and re_n. A_ with natural pmsons, the decision whether or no_to prosecu_ should _t dep_d upon the targ_s abi|_ to pay rcstRution,A coq_retlon's efforLsto pay rest_tutlon _ven in advance of any court order is, however, evidence of _s "acceptance of responsibility and, consistent with the prances and poliotesof the _ appropriate Ok,islon of the Oepactment er_rusted with e_for_ln9 specW_c riminal I_ts= may be considered c determining whether to bring criminal charges. Similarly, although the inadequacy of a corporate compii_nc_ program is a _¢_or to consider when deciding whether to charge a corporation, _=_t co_l_'ation's quick tecogn_lon o_h_ _aw_ in _he program and |_sefforts _ improve _he program are aiso factors to c_nsid_n

A. General Principle: Prosecu_ may co_i_ th_ collateral consequences _f a corporate c_mi_a| ¢o_v_t_on k_determtc_g w_her _ charge the ¢_¢pora_onw_h _ _mln_i offense. _. Comment: One of thefa_tom_ndetermining whether to charge a t_aturalpemon or a coq_orationis whether the like|y punishment Is appropriate given _e r_ture and seriousness of the crime, tn the corporate context, prosecutors may take into account the possibly substantial consequences to a corporation's officers, directors, employees, and shareholders, many of whom may, dependiro on the size and nature {e.g., publk_ty vs. closely held) of the corporation and _eif role in itsoperations, have played no role in the cdmlnal conduct, have been completely unat_are of it, or have been wholly unable to prevent it, Prosecutors should also be aware of non-penal sarc,tkms that may accompany a cdminal charge, such as potential suspension or debarment from eligibilityfor govemmen! contracts or federal funded programs such as health care. Whether or not such nonpenal sanctions are appropriate or required in a pattioular¢ase is the responsibilityof the relevant agency, a decision that will be made based on the applicable statutes, regulations, and policies. ViKl_ailyevery conviction of a co,ration, like virtc._ilyevery ¢onvP._onof an ir_dividual, will have an impact on innocent l_trd parties, and _e mere existence of such an effect is not sufficient to prec|ude prosecution of the corporation. Therefore, in evaluating lhe severity of collateral consequences, various factors already discussed, such as the pewasiveness of the criminal ¢_lu_ and the adequacy of the corporation's compliance programs, should be cons_lered in determining the weight to be given to this factor. For instance, the balance may tip iin _vor of prosecuting corporations in situations where the scope of the misconduct L_a case is widespread and sustained within a corporate diviston (or spread throughoutpockets of the corporate organization). In such cases, ff_epossible un_almess of v_iting punishment for the corporetiorts crimes upon shareholders may be of much less concern where those shareholders have substantiallyprofited, even unknowingly, from widespread or pervasive criminal a,a,a,a,a,a,a,a,a,a_ty. Similarly, where the top layers of the corporation's management or _e shareholders of a closely-held corpomtiee ware engaged in or aware of _ wrongdoing and the conduet at issue was accepted as a way of doing business for an extended period, debarment may be deemed not collateral, but a direct and entirely appropriate consequence of _e o:trporat_n's wrongdoing. The appropriateness of considering such collateral consequences and the weight to be given them may depend on the special policyconcerns discuased tn section ill, supra. X. Ohergtng = Corporation: Non-Orimtnal Alternatives ,_ General Pdndple: Although non-c_riminal alternatives to prosecution often exist, prosecutors may consider whether such sanctions would adequately deter, punish, and rehabilitate a _orporation the_has engaged in wrongful conduct. In evaluating the adequacy of non_rtminal alternatives to prosecution, e.g., civil or regulatory enforcement a_ons, the prosecutor may considera, relevant factors, including: ( _. 1. the sanctions available u_d_ the altematlve means of disposition; 2, the llke_lho_ _at an effective sandion will be _posed; h_p:/Iwww.usd_j._ov/d,s_cRf/corpor_e _dermes.htm and 2/IU03

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3. the effec_of non-criminal dispo_R_on Fecleral _w enforcement interests. on

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B. Comment: The primary goats of criminal law are deterrence, punishment, and rehabifitation. Non_'iminaJ sanctions may Pot be an appropr_te response to an egregious violation, a pattern ofwrongdoing, or a history of non_rkninal sanctions w_hout proper remedtaCJon, other ¢_mes, however, these goals may be serried withc_._ in the necessity of institu_ng trim|nat proceedings, in determiningwhether federal ndmina_ charges are appropriate, the prosecutor shouldconsider the same factom (modified app_pr_atsly for the regulatoPj context) cons|dared when determining whether to tears prosecutionof a rmturai person to ano_erjurtsdictton or to seek non-criminal sltemat;_vesto _tiono These fack_ tnci_de; the strength of the regulatory authofity's _nterest; _he _uiatory authortty'sability and wili|ngness to take effe_ve _o_m'cent action; the probable ear,orionif _ _gUlatory authorRy's enforcement action is uphela;and the effectof a _on-cdmtnal disposition on Federal law enf'_cemer_t interests. _ USAM §§ _-27.240, 9-27.250. XL Charg|ng a Corporation: SeJsctl_g Charges A. Generat Pdnc_p_: O_¢e a prosecutor h_s decided to charge a corpora_n, the pmseculor should charge, or should recommend that the grandjury charge, the most serious offense that is c_r_sistentwt_ _e nature of the defendant's conduct and that is flke_yto result in a sustalnabJeeonv-_don. 8. Comment: Once |he decision to charge is made, the same rules as govern charging na_r.'ai persons apply. These rules require _ faithful an_ honest applicationof the Sent_mcingGuidelines" and an _:mdividua|ized assessmerd of the extent to which particularcharges fit the specif_ circumstances of the case, are consistent with purposes of the Federal criminal code, and maxlmlze the impact of Federal resources on cdme." See USAM 9-27.300. In mald_g this determination, "it is appropriate that the attorney for the government consider, i_teralia, such factors as the sentencing guideline range yielded by the charge, whether the penalty yielded by such sentendng range ... is proportional to the seriousness of the defendant's conduct, and whether the charge achieves such purposes of the criminal law as punishment,protection of the pubr¢, specifK_and general deterrence, and rehabilitation."P,es Attorney General's Memorandum, dated October 12, 1993.

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Xll. Plea Agreements with Corporettor_ A. _ Principle:tn negotiating plea agreements with corporations, prosecutors should seek a plea to the most sedous, readily provable offense charged, in addition,the terms of the plea agreement should contain appropriate provisionsto ensure punishment, deterrew.e, rehabilitation, and compliance with the plea agreemen_ in the corporate context, Although specml circumstancesmay mandate a different conclusion, prosecutors generally should not agree to accept a corporate guiltyplea in exP.J_angeor non-prosecution or dismissal o_ f ¢_u_'geeagainst individual officers employees, and ELComment: Prosecutors may enter intoplea agreements w'_ corporations for Itm same reasons and under the same constraints as apply to plea agreements with natural persons. See USAM ,_ 9-27,400-500, This means, interalia, that the corporation should be required to plead guilty to the most serious, readily provable offense charged. As is the ease with individuals, the attorney making this detatmlrratien should do so "on the basis of an individualized assessment of the extent to which particular charges fit the specific cimumstances of the _tse, are consistent with the purposes of the federal cdmlnalcoda, and maximize the impact of federal resources on crime. In making this determination, the attorney for the government considers, inter alia. such factors as _ sentencing guideline range yielded by the charge, whether the penalty yielded by such sentendng range ... is proportional to the seflou_ness of the defendant's conduct, and whether the charge achieves such purposes of the criminal law as punishment, protection of the publ'¢, specie and general deterrence, and rehablitation_ See Attorney General's Memorandum, dated October 12, 1993. tn addition, any negotiated departures from the Sentencing Guidelines must be justiFrabte under the Guidelines end must be disclosed to the sentencing court. A cerporation should be made to realize that pleading guiltyto criminal charges constitutes en admission of guilt and not merely a resdut_onof an inconvenient distraction from itsbusiness. As with natural persons, pleas should be structured so that the corporation may not later "proclaim lack of culpabilityor even complete Innocence." See USAM §§ 9-27.420(b)(4), 9-27.440, 9-27.500. Thus, for instance, there should be placed upon the record a sufficient factual basis for the plea lo prevent later corporate assertions of innocence.

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A corporate plea agreement shouldalso contain provisionsthat recognize the nature of the corporate _person" and ensure that the principles'of punishment,deterrence, and rehabilitalJonarem_t. In the corporate context, punishment and deterrence are generally accomplishedby substantialfines, mandatory restituEon= and ht_p'J/www.usdaj.g_v/daglcffflco_po_teg_del_es.hcm 2/I1/03

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institution of appropriate compliance measures, including, if necessary, continued judicial oversight or the use of special masters. See USSG §§ 8B1.t, 8C2._, st esq. In addition, where the corporation is a government coutmctor, permanent or temporary debarment may be appropr_te. Where the corpe¢_on was engaged in government contracting _ud, o proseP)._ormay not nego_ate away en _gency's _ght to de_r or to listthe co@o_te defeadant. tn negoC_ting a plea ogreement, prossc_tore should stsoconsider the deterrent vo_Jeof prosecutions of individuals within the corporation. T_ere_re, one P_or that a prosecutor m_y consider in determining whether _e e_te_ into e p_ea_ree_t _swhether the corpora_on ks sse_ng immur_ty for iis employees and officers er whether the coq_oraUon is willing to cooperate in the lnves_gation of ¢utpaNe tnd'_viduois. Prosecutors ehou}d rare_y negc_ateaway individua_¢d_lnal rmN_ _n_ _rperat_ p_. RehaNitatien, of course, requires that the corporation undertake to be law-aNd_ng _n _ future, it is, _erefore, appropriate to require the corporation, as a conditiono_Probation, to imp|ernent o co_p_once prcNram otto refon'nen existing one. As discussed above, prosecutorsmay consu_ _ the _ppropciete state a_d federal agencies and (_rnponen_s the Justice Department toensure that a proposed cornplta_c_ program is odequa_ of and _ets indus_ standards and _ practices. See section Vl|, _up_a. in p|ea agreements _nwhich the corporation agrees _ cooperate, the prosecutor should ensure _at the cooperation is complete _d truthful. To de so, the prose_or may request that the corporot_onwaive ot:torney= _mnt and work product protec_on, make employees and agents evcllaNe for debde6ng, disclese the resu_ of its Internal invesUgatton, _le appropriate certi6ed flnanda! statements, agree to governmental or th|rd-par_ sudS, and take _hatever other steps a_e necassory to ensure that the _uU scope of the corporate wrongdoing is disClosedand that the responsible culprits are identified and, if appropriate, prosecuted. See generally eec_on Viii, supra. Foot.ores:
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1. While these guidelines refer to corporations, they apply to the consideration of the prosecution of all types of business organ'rzations,including partnemhlps, so_ _opdetomhips, assodati0ns, government entities, end unincorporated

2. in oddiUon,the Sentencing Guidelines reward voluntaP_disclosure and cooperation with a reduc_on in the co¢_oration'soffense level _ee U_SG §8C2.5)g). 3. This waiver should ordir_d_ybe _mtted to the _actuoi intem_| |nvestig_ion and any eo.temporaneous _dvlce given to the corpom_on concerning the ¢onduc_at issue. Except in unusual circumstances, prosecutorsshould not seek a waiver with respect to eommunica6ons and work product retired to advice concerning the government's criminal investigation. 4. Some states require corporations to pay the isg_d fees of officers under |nvsst_gationpdor to a formal determina6o, of their guilt. Obviously, a corporation*scomp_ance with governing law ohould not be considered e failure to cooperate. 5, Although this case and Basic Cons_ruc_onare bothanl_Je, t cases, their reasoning applies to other cdminai violations, tn the Hilton case, for instance, the Nnth Circuit noted that Sherman Act violations are commercial offenses "usually motivated by a desire to enhance profits,"thus, bdnglng the case within the normal rule th_ a _purposs to benefit the corporation is necessary to bring the egent_ acts within the scope of his employment,= 467 F.2d at 1006 & n4. in addition, tn United States v. Automated Mec_al Laboratories, 770 F.2d 3gg, 406 n.5 (4_ Cir. _985), the Fourth CImult stated "that Basic Constru_on states a generally opplicaNe rule on oorporate criminal _abiltty despite the fact that it addresses violationsof the antitrust laws._ 6, For o detailed review of these end other _ctom concerning corporate compliance programs, see U_ite_ States Sentencing Con_ission, GUIDELINES MANUAL, §8A12, comment. (n.3(P_)(Nov. 1997). See also U$SG _SCZ5(0 7. For example, the Antitrust Oivtslon'samnesty percy requires _at"[w]here resection to injured peY_es...." ht_p://ww_._sdoj .gov/_cfff/ce_rat e_g_[_eli_es.h_m possg_le,the corp_m_en [make1 2/t U03

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