Assistant Attorney General Leslie R. Caldwell Delivers Remarks at the New York University Center on the Administration of Criminal Law’s Seventh Annual Conference on Regulatory Offenses and Criminal Law

Thank you, Deborah [Gramiccioni], for that kind introduction.  I also would like to thank New York University, the Center on the Administration of Criminal Law and Professor Barkow for hosting this and other events in which judges, practitioners, academics  and students can engage in very meaningful discussions about important criminal law issues.

I am honored to participate in the Center’s Seventh Annual Conference on Regulatory Offenses and Criminal Law.  Today, I plan to discuss the role of criminal law enforcement in prosecuting conduct that may also be subject to regulatory enforcement, and to highlight how criminal, civil and regulatory authorities collaboratively work to enforce certain federal criminal laws.   

Since last May, I have had the pleasure of leading the Criminal Division of the Department of Justice.  The Criminal Division includes approximately 600 attorneys from 17 sections and offices who investigate and prosecute federal crimes, develop criminal laws and law enforcement policy and promote the rule of law abroad.  While the U.S. Attorneys’ Offices around the country focus on investigating and prosecuting crime in their respective districts, the Criminal Division – often in partnership with U.S. Attorneys’ Offices – focuses on issues that affect the nation as a whole, and frequently participates in investigations that are international in scope. 

Among the sections that I oversee as Assistant Attorney General are certain sections in which the prosecutors investigate violations of federal criminal law where the conduct also falls into the regulatory sphere.  One of those sections is the Fraud Section, which plays a unique and essential role in the department's fight against sophisticated economic crime.  The Securities and Financial Fraud Unit within the Fraud Section focuses on the prosecution of complex securities, commodities and other financial fraud cases.  Working closely with regulatory partners at the Securities and Exchange Commission, the Commodity Futures Trading Commission, the United Kingdom’s Financial Conduct Authority, and other domestic and foreign agencies, the unit has tackled some of the largest frauds in the financial services industry.  And the Health Care Fraud Unit in the Fraud Section prosecutes individuals and entities that engage in high-dollar Medicare fraud and other health care fraud. 

I also oversee the Asset Forfeiture and Money Laundering Section (AFMLS).  Among other things, AFMLS handles and coordinates complex, multi-district and international criminal cases involving financial institutions and individuals who violate the money laundering statutes, the Bank Secrecy Act and other laws.  We often work with the Department of the Treasury and the Federal Reserve Board in these cases.

The Criminal Division’s Public Integrity Section has an Election Crimes Branch, which is responsible for the investigation and prosecution of violations of federal elections laws, including election fraud, campaign finance violations and select civil rights offenses. 

There is often overlap between the conduct that we investigate in the Criminal Division and conduct that our regulatory partners regulate and investigate.  The vast majority of criminal laws require the government to prove some level of mens rea or knowing or willful conduct.  And, where a statute or regulation does not expressly provide one, courts do.  Generally, the department pursues criminal prosecution when the conduct at issue was knowing or willful, or where the relevant industry or conduct is so heavily regulated that participation in the industry or conduct mandates knowledge and awareness of governing laws such that criminal prosecution is appropriate even in the absence of willful conduct.   

There are a few criminal statutes that impose strict liability on certain conduct.  There has been much debate and discussion – including during this morning’s panel discussion – about the propriety of imposing strict liability.  But, in the absence of an express mens rea requirement, strict liability only exists in the limited circumstances in which the public welfare is at stake, and the law properly places the burden of compliance on those uniquely positioned to ensure the safety of our food, drugs, water, air and workplaces, not innocent consumers or workers. 

In enacting legislation such as the Food, Drug, and Cosmetic Act; the Clean Air Act; the Clean Water Act; and the Occupational Safety and Health Act, Congress determined that it is in our national interest to ensure that Americans consume safe foods and drugs, breathe clean air, drink clean water and work in safe environments.  Congress also delegated to the relevant executive branch agencies the responsibility of promulgating specific regulations that are necessary to implement the statutes’ directives and protect the public welfare.   

Such crimes generally are misdemeanors, and the resulting reputational harm and other collateral consequences that stem from conviction tend to be less significant than those of a felony conviction.  Rather, the enforcement of strict liability offenses is intended to sufficiently punish and deter those in positions to protect the public and prevent future harm.   

A classic example of this type of crime involves the 2011 listeria outbreak that killed 33 people.  Investigators traced the source of the outbreak to a Colorado cantaloupe farm, Jensen Farms.  In September 2013, Department of Justice prosecutors in Colorado charged the farm owners, Eric and Ryan Jensen, with six counts of introducing adulterated food into interstate commerce.  The brothers pleaded guilty to the misdemeanor offenses, and, consistent with the prosecutors’ recommendation, were sentenced to five years of probation and six months of home detention and were ordered to pay $150,000 in restitution and to perform 100 hours of community service. 

The number of those strict liability offenses is small compared to the majority of criminal offenses that require knowing or willful conduct.  Those are the type of offenses we typically prosecute in the Criminal Division.  Often, our cases involve conduct that could also be subject to civil enforcement or regulatory action.  Prosecutors and regulators have different, and sometimes complementary, law enforcement-related missions.  While both regulators and prosecutors aim to protect the public by preventing and deterring misconduct, regulators primarily are responsible for ensuring the stability and safety of a particular industry or business practice, and prosecutors are charged with identifying and punishing criminal acts. 

But there is a critical need for criminal prosecutions, even if conduct could be pursued civilly or through regulatory action.  The stakes in criminal prosecutions are high – often involving prison time for individuals, and potential collateral consequences for companies – but there are many situations in which those stakes are the only just punishment for the offense.  And often it is the threat of criminal prosecution that deters potential wrongdoers.

In many cases, the department works on investigations parallel to civil enforcement attorneys or regulators.  It is Department of Justice policy that criminal prosecutors and civil attorneys should coordinate with one another and with agency attorneys to protect and advance the government’s overall interests.  Early and effective coordination is critical to ensuring the efficient use of resources and the best ultimate outcome, while also making sure that the investigations remain separate and follow the mandates of each agency.  Parallel investigations maximize our potential to secure the appropriate resolution, whether it be criminal prosecution, financial penalties, restitution, asset forfeiture or federal program exclusion or debarment. 

Some matters initially may come to the attention of the department through a criminal investigation, but may best be resolved through civil, regulatory or administrative remedies.  Other matters that first come to the attention of civil or regulatory offices are best handled by prosecutors when the conduct rises to the level of criminal culpability.  Still other matters may justify the continued pursuit of parallel investigations -- proceedings by criminal enforcement as well as civil or regulatory enforcement. 

Criminal prosecutors have tools that are not available to civil or regulatory enforcement authorities.  For example, where appropriate, criminal investigators may obtain search warrants, use electronic surveillance techniques, employ undercover agents and use grand jury subpoenas to obtain evidence and testimony. 

The Criminal Division is careful to use investigative tools for their proper purposes and in appropriate ways during parallel investigations.  Where possible, we use investigative tools that allow appropriate sharing of information, instead of grand jury subpoenas that have Rule 6(e) restrictions.  Our prosecutors are also sensitive to the proper techniques in parallel investigations, such as not using civil or regulatory investigators as stalking horses for criminal investigations.  It is a delicate balance to coordinate yet also conduct the investigations separately, not jointly, but our prosecutors are experienced in this area.   We use investigative strategies that maximize the government’s ability to share information appropriate to the case and permissible by law, while recognizing the distinct roles that prosecutors, civil attorneys and regulators play.

The Criminal Division has recently announced several resolutions that result from parallel investigations with regulators.  These cases demonstrate the value that criminal enforcement adds, compared to regulatory enforcement alone.

Last month, we resolved a criminal investigation of Commerzbank AG, a global financial institution based in Frankfurt, Germany, and its New York branch Commerz New York.  The bank agreed to forfeit $563 million, pay a $79 million fine and enter into a deferred prosecution agreement (DPA) with the Department of Justice for violating the International Emergency Economic Powers Act and the Bank Secrecy Act.  The bank also entered into settlement agreements with the Treasury Department’s Office of Foreign Assets Control and the Board of Governors of the Federal Reserve System.

According to the statement of facts, from 2002 to 2008, Commerzbank knowingly and willfully moved approximately $263 million through the U.S. financial system on behalf of sanctioned entities in Iran and Sudan.  To do so, Commerzbank used “cover payments,” which concealed the involvement of the sanctioned entities in transactions processed through Commerz New York and other financial institutions in the United States.  Internal bank emails show that Commerzbank knew that its practices violated U.S. law.  Commerzbank’s senior management was warned about the nature of the payments, and internal auditors raised concerns, but those concerns were not shared with their U.S. counterparts.  Instead, Commerzbank intentionally hid from its New York branch that it was processing payments on behalf of Iranian clients. 

Through deferred prosecution agreements and non-prosecution agreements – or DPAs and NPAs – in cases against companies, we are frequently able to accomplish as much as, and sometimes even more than, we could from even a criminal conviction.  We can require remedial measures and improved compliance policies and practices.  We also can require companies to cooperate in ongoing investigations, including investigations of responsible individuals.  To ensure compliance with the terms of the agreements and to help facilitate companies getting back on the right track, we can impose monitors and require periodic reporting to courts that oversee the agreements for their terms.

Some of these outcomes may resemble remedies that can be imposed by regulators.  But these agreements have several features that cannot be achieved by regulatory or civil resolutions. 

Criminal Division resolutions require that an entity admit to its misconduct.  Commerzbank, for example, admitted responsibility and agreed to a detailed statement of facts that was filed with the court.  Whereas some regulators permit “no admit, no deny” resolutions – for legitimate reasons of their own – we require that individuals and entities acknowledge their criminal culpability if they are entering into a NPA, DPA or pleading guilty.

Where we enter into DPAs, a criminal information is filed with the court and prosecution of the information is deferred for the time of the agreement.  Where a company fails to live up to the terms of its agreement, an information is already filed, and we can tear up the agreement and prosecute based on the admitted statement of facts.  That’s a powerful incentive to live up to the terms of the agreements.

When we suspect or find non-compliance with the terms of DPAs and NPAs, we have other tools at our disposal, too.  We can extend the term of the agreements and the term of any monitors, while we investigate allegations of a breach, including allegations of new criminal conduct.  Where a breach has occurred, we can impose an additional monetary penalty or additional compliance or remedial measures.  And let me be clear: the Criminal Division will not hesitate to tear up a DPA or NPA and file criminal charges, where such action is appropriate and proportional to the breach.

Obviously, not every breach of a DPA warrants the same penalty.  We are committed to pursuing an appropriate remedy in each case, and we will calibrate the penalty we pursue to fit the nature of the violation and the corporation's history and culture.  And we will do so transparently, with an explanation of what factors led to the resolution in each case.

In another example of a parallel investigation, the department announced the landmark guilty plea last year of BNP Paribas – BNPP – the fourth largest bank in the world.  Between 2004 and 2012, BNPP knowingly violated the International Emergency Economic Powers Act and the Trading with the Enemy Act – known as IEEPA and TWEA -- by moving more than $8.8 billion through the U.S. financial system on behalf of Sudanese, Iranian and Cuban entities subject to U.S. economic sanctions.  The majority of the transactions facilitated by BNPP were on behalf of entities in Sudan, which is subject to a U.S. embargo due to the Sudanese government’s role in facilitating terrorism and committing human rights abuses. 

BNPP’s criminal conduct took place despite repeated warnings expressed by the bank’s own compliance officers and its outside counsel.  In response to the concerns identified by compliance personnel, high-ranking BNPP officials explained that the questioned transactions had the “full support” of BNPP management in Paris.  In short, BNPP expressly elected to favor profits over compliance. 

Ultimately, BNPP pleaded guilty to conspiracy to violate IEEPA and TWEA, and agreed to pay record-setting financial penalties of over $8.9 billion.  And the company admitted its misconduct – including its disregard of compliance advice – in a detailed statement of facts that was made public.

Particularly in the financial markets, the various law enforcement agencies and regulators help ensure a fair, transparent marketplace for investors and businesses.  The case was prosecuted alongside the New York County DA’s Office, which conducted its own investigation, and the Treasury Department’s Office of Foreign Assets Control reached its own settlement for the sanctions violations.  We also worked with the Federal Reserve and the New York State Department of Financial Services, as well as foreign regulators and the Criminal Division’s Office of International Affairs.    

Perhaps most significantly, criminal prosecution is the best manner in which to punish culpable individuals.  And the seriousness of potential or actual punishment for felony criminal convictions, including incarceration for individuals, and the stigma and reputational harm associated with criminal charges or convictions, serve as powerful deterrents. 

As an example, last year, we prosecuted both the former CEO and the former CFO of ArthroCare Corporation for their roles in a $400 million securities fraud scheme.  ArthroCare was a publicly-traded medical device company based in Austin, Texas, and the defendants cooked the books to prop up their company’s stock.  They were convicted after a four-week jury trial, and one of the defendants was also convicted of making false statements in a SEC deposition during a SEC investigation.  The former CEO was sentenced to serve 20 years in prison, and the CFO, 10 years.  That case – involving egregious accounting fraud and where one of the defendants lied during a SEC deposition – shows the role that criminal prosecution can play in holding individuals accountable for their criminal conduct.

Thank you, again, to New York University and to the Center on the Administration of Criminal Law for inviting me to address this impressive group and to participate in this productive discussion.