“Fear is a tool”
Like Batman, the DOJ's corporate crime-fighters can't be everywhere
The film “The Batman” begins in Gotham City on Halloween night. A monstrously masked criminal robs a convenience store as Robert Pattinson-as-Batman delivers a voiceover monologue: “It’s a big city. I can’t be everywhere,” he says, explaining that The Bat Signal spotlight beaming into the sky is a warning to evildoers that anywhere there are shadows, Batman could be lying in wait. “Fear is a tool,” he says.
A 2016 publication by the DOJ’s Office of Justice Programs says that the certainty of being caught breaking the law is a more powerful deterrent than punishment – and that the best way to deter crime is to increase the perception that criminals will be caught and punished.
With federal corporate prosecutions down to their lowest level on record – just 90 in 2021 – the DOJ has a lot of work to do changing the perception that corporate criminals will be caught and held accountable.
Thankfully, the policy changes and rhetoric coming out of the DOJ are clearly aimed at changing that perception – and, apparently, striking fear into the hearts of corporate defense lawyers.
One corporate lawyer who works for Big Tech firms like Google recently described the enforcement rhetoric coming out of Biden’s Department of Justice as “terrifying” in a recent Bloomberg News story, which also described a roomful of corporate defense lawyers reacting to a panel on the DOJ and FTC’s strengthened approach to antitrust enforcement with “nervous laughter.”
Meanwhile the U.S. Chamber of Commerce’s antitrust lobbyist criticized the DOJ’s rhetoric as “irresponsible,” “erroneous,” “dangerous,” “over the top,” and “politically charged.” (The U.S. Chamber represents a gallery of corporate rogues, including Amazon, Facebook parent company Meta, and Google parent company Alphabet, all three of which are under investigation by federal and state authorities for antitrust violations.)
Nevertheless, policy and rhetoric only can go so far.
I discussed this dynamic with Harper Neidig in The Hill. “There’s been a meaningful shift in the way DOJ talks about corporate crime,” I said in conversation with Haper Neidig in The Hill. “But what they can do [to show they’re serious] is start prosecuting cases.”
Of course, corporations aren’t people. They don’t feel fear. Unlike individuals, they are expected to operate as ultra-rational and fundamentally mechanical risk-assessment machines with one primary goal: to increase profit.
For corporations, it’s not enough that they are caught (though that would be an excellent start). But it’s clear that if the consequences of getting caught again and again merely is punishment that, in the corporate risk assessment, is worth the risk in light of the perceived profitability of breaking the law, then the lawbreaking will not be deterred.
To deter corporate crime, the consequences for the corporation itself and for its executives when they are caught must be costly enough — for the corporation in terms of money and for executives in terms of a credible threat of criminal charges. It must be obvious that the risk is not worth the perceived benefit.
The unmistakable message federal corporate enforcement officials must send to Corporate America – through policies, rhetoric, AND enforcement actions – is that crime does not pay.
Like Batman, the DOJ’s corporate crime fighters can’t be everywhere. But rhetoric, policy changes, and – most importantly – prosecutions can serve as warnings that would-be corporate lawbreakers would be wise to heed.
Big Business Blotter News Roundup
A New York City law firm has filed a class-action lawsuit against Credit Suisse over claims the bank has misled investors over its business relations with Russian oligarchs. Pomerantz, who filed the suit on Friday on behalf of a group of people and entities who acquired securities between March 2021 and March 2022, said in their statement: "The complaint alleges that, throughout the class period, defendants made materially false and misleading statements regarding the company's business, operations, and compliance policies."
One judge described the court's own past rulings as "a flimsy ship" to build on, while another gave little weight to Purdue's argument that the Sackler protections were necessary to secure funding for opioid settlements. "Please don't shoot yourself in the foot by saying it is the contributions of the Sacklers that make this plan lawful," said Judge Jon Newman.
A 2018 settlement with the SEC over a Musk tweet claiming he had “funding secured” to take Tesla private at $420 a share has been a thorn in his side ever since. This week, Musk failed in his attempt to get out from under that settlement, which, among other things, requires him to get preapproval for some of his tweets from lawyers.
According to court documents, Stericycle entered into a three-year deferred prosecution agreement (DPA) with the Department of Justice in connection with the filing of a criminal information charging the company with two counts of conspiracy to violate (1) the anti-bribery provision of the Foreign Corrupt Practices Act (FCPA), and (2) the FCPA’s books and records provision. Pursuant to the DPA, Stericycle’s criminal penalty is $52.5 million. The department has agreed to credit up to one-third of the criminal penalty against fines the company pays to authorities in Brazil in related proceedings, including an amount of approximately $9.3 million to resolve investigations by the Controladoria-Geral da União (CGU) and the Advocacia-Geral de União (Attorney General’s Office) in Brazil. In addition, Stericycle has agreed to pay approximately $28 million to resolve a parallel investigation by the U.S. Securities and Exchange Commission (SEC).
The Arkansas state attorney general is suing the value-store chain Family Dollar, claiming the company knew of a “massive and long-lasting” rodent infestation at a West Memphis distribution center but still continued to sell potentially contaminated products that were stored there. The lawsuit, which was filed on Thursday, came after the company temporarily shut down more than 400 stores in February following a Food and Drug Administration inspection that found “a history of infestation” at the facility.
A former employee at Abbott Nutrition’s Sturgis, Mich., infant formula plant flagged concerns about food safety violations directly with senior FDA officials in October — months before two infants died and another was hospitalized from bacterial infections after ingesting formula made at the plant, according to a document reviewed by POLITICO.
Activision Blizzard is facing another complaint to the National Labor Relations Board (NLRB) that it’s trying to keep employees from talking about their working conditions, despite their legally protected rights to do so. The Communications Workers of America (CWA) has filed an unfair labor charge against the company, alleging that it told workers “they could not discuss issues related to the sexual harassment and discrimination lawsuit filed by state of California against the company,” according to a press release from the union.
The problem, as detailed in a 2020 investigation by NFHA, was, in effect, a modern version of redlining, the racist lending and housing market policies of postwar United States that effectively segregated neighborhoods and blocked many communities of color from homeownership in general. NFHA’s investigation mapped out the properties in cities like Baltimore, Detroit, and Kansas City where Redfin declined services due to its price threshold. The maps show high concentrations of these listings in ZIP codes with large non-white populations, while serviced listings were disproportionately located in ZIP codes with larger white populations.
Otonomo says it has systems in place that protect peoples’ privacy. But in June last year, Motherboard published an investigation based on a set of Otonomo data and used the information to find where people likely lived, worked, and where else they drove. At the time, experts said that Otonomo could face legal consequences because of how it handles consent and its data. The new lawsuit focuses specifically on those issues.
The lawsuit’s outcome could have far-reaching implications for crypto. If the SEC prevails, it could upend the way crypto companies operate, setting a precedent that the digital assets they offer users must be subject to the strict reporting and registration rules that apply to securities. If Ripple wins, it would be a major victory for crypto at a time when the industry is growing rapidly but also facing more intense regulatory scrutiny on multiple fronts.
A former executive at Cerebral, a well-funded online mental health startup, claims in a labor lawsuit that the company fired him after he complained that the company was too quick to prescribe powerful stimulant drugs. Matthew Truebe, former vice president of product and engineering at Cerebral, claims that the company "egregiously put profits and growth before patient safety," including overprescribing medications for attention deficit hyperactivity disorder (ADHD). The lawsuit, filed Wednesday in California state court, alleges that Cerebral planned to increase customer retention by prescribing stimulants to 100% of its ADHD patients.
Under today’s settlement, CVS will conform web content about the COVID-19 vaccine, including the forms for scheduling an appointment to get the vaccine, to the Web Content Accessibility Guidelines (WCAG), Version 2.1, Level AA. WCAG is a set of voluntary industry guidelines for making information on a website accessible to users with disabilities. CVS also must regularly test the pages of its website that include vaccine scheduling and information about the COVID-19 vaccine, and quickly fix any problems that keep people with disabilities from being able to use these pages.
ENERGY / ENVIRONMENT
New York Attorney General Letitia James launched a wide-ranging investigation Thursday into whether the oil industry has engaged in gas price gouging, a person familiar with the matter told CNN.
The oil and gas industry has a new battle to fight with California Attorney General Rob Bonta’s first-of-its-kind investigation into their role in the global plastics crisis—and it looks a lot like one they’ve been fighting over climate change. Bonta on Thursday announced his investigation and said that his office had issued a subpoena to ExxonMobil over its role in the plastics crisis.
An American wind energy company has admitted to killing at least 150 bald and golden eagles, most of which were fatally struck by wind turbine blades, federal prosecutors said. ESI Energy pleaded guilty Tuesday to three counts of violating the Migratory Bird Treaty Act (MBTA) after eagles died at three of its facilities in Wyoming and New Mexico, according to a statement from the Justice Department.
The company requested that Copenhaver bar Callaghan from using words it calls “improper, inaccurate and prejudicial.” Those include “facility,” “dump” or “open dump,” “hazardous waste,” “pollutant or contaminant,” “point source,” “discharge,” “direct discharge,” “discharge of a pollutant,” “waters of the United States” and “disposal.”
CONSUMER FINANCIAL PROTECTION
In 2017, TransUnion settled serious allegations of wrongdoing by paying roughly $17 million and agreeing to enter into a law enforcement order with the CFPB forbidding further violations. Rather than adhere to the terms of the 2017 order, TransUnion treated the terms simply as suggestions, flouting the order from the outset and redeploying digital dark patterns to dupe Americans into monthly subscription plans.
In a letter to Chopra, the GOP side of the committee, led by ranking member Patrick McHenry (R-NC), issued a stern warning about the CFPB’s “efforts to weaken the financial system” by curtailing banks’ ability to exploit low-income Americans with usurious rates. All Republican committee members except Frank Lucas (R-OK) signed their name to it. It’s a curious strategy for a Republican Party that has loudly clamored about anything that might be perceived as “defunding the police.”
Biden’s FY 2023 budget request, in contrast, does provide a meaningful bump, allocating an additional $88 million to ATR and an additional $139 million to the FTC. However, based on the White House’s release, it is unclear how much of that additional money is coming from Congress directly. One complicating factor when talking about FTC and ATR budgets is that sizable portions of both are derived from fee revenue, not congressional appropriations. When companies file an HSR notification declaring their intent to consolidate, they pay a fee, which goes towards funding both of the primary antitrust regulators. These HSR fees constitute roughly two thirds of the Antitrust Division’s budget most years, as well as a significant portion of the FTC’s. Currently, there is pending legislation – the Merger Fee Modernization Act – that changes these fee schedules so that larger firms pay significantly steeper fees. It is possible that much of Biden’s increases depend on and assume the higher HSR fee revenue that would result from passage of the act.
The Financial Crimes Enforcement Network’s acting director Himamauli Das told a congressional committee that his small team is “incredibly talented,” but “outmatched” in policing cryptocurrency exchanges and behind on creating a beneficial ownership database. “As you are aware, we are missing deadlines,” Das told members of the U.S. House Committee on Financial Services on Thursday. “To be blunt, we will likely continue to do so because our budget situation has required us to make significant trade-offs among competing priorities.”