What a New Attorney General Could Mean for Corporate Enforcement

Adam Dobrik, Global Investigations Review

President Donald Trump’s new attorney general, William Barr, pursued major white-collar cases quickly and efficiently when he previously led the Department of Justice. Working in the private sector, he advocated for his successors at the DOJ to do the same, voicing scepticism in particular of how prosecutors handled corporate cases. He has previously expressed concern that prosecutorial powers have been “abused in the era of pursuing corporate crime”. Lawyers who know Barr describe him as a scholar and an ideas man, capable of bringing together rival parties to resolve cases.

Based on his track record as attorney general, public remarks while in the private sector and interviews with those who’ve known him, GIR explores how Barr likes to approach corporate crime cases.

“As mean as a mamma wasp”

Barr’s confirmation hearing on 15 January to become the next attorney general was predictably dominated by questions about special counsel Robert Mueller’s investigation into possible collusion between Russia and President Donald Trump’s 2016 campaign team.

Few questions were asked about how Barr, a Kirkland & Ellis lawyer who previously served as attorney general under President George HW Bush, will approach white-collar crime enforcement, a consequence perhaps of waning political interest. The big bank investigations spawned by the 2008 financial crisis, which focused political attention on corporate crime and resulted in multibillion-dollar civil settlements, are now over.

At the end of the Senate Judiciary Committee hearing, Senator John Kennedy, a Republican from Louisiana, teed up Barr by asking why the US Department of Justice had failed to prosecute bank executives for their roles in the financial crisis.

Barr said he couldn’t explain why. Instead, he pointed to his record as attorney general between 1991 and 1993, when the DOJ convicted hundreds of individuals for their roles in the savings-and-loan crisis.

“We prosecuted a lot of people very quickly and we cleaned it up very quickly,” Barr said. “I’m not afraid of going after fraud at the corporate level, and it was one of the most successful government responses to that kind of whole-sector meltdown that there’s been.”

The senator responded gleefully: “As we say in Louisiana, you were as mean as a mamma wasp!”

The hearing, which wrapped up minutes later, revealed almost nothing about Barr’s take on corporate enforcement. His actions as attorney general and his public comments in later years offer better clues.


“Under Barr’s mandate we all worked together”

In August 1991, Barr was promoted from deputy attorney general to acting attorney general following the resignation of Richard Thornburgh. Confirmed as the permanent head of the DOJ three months later, Barr was confronted with an escalating crisis.

The Bank of Credit and Commerce International (BCCI), a Pakistani bank that was then one of the largest financial institutions in the world, had engaged in large-scale money laundering and fraud and was under investigation by multiple authorities inside and outside the US. At the time, BCCI was believed to be the largest financial fraud in history.

A procession of US enforcers – including the DOJ, the Manhattan District Attorney’s Office and the Federal Reserve – were pursuing the case. But there was infighting among the enforcers over how to resolve the matter, according to lawyers who worked on the case.

In particular, there were tensions between the Manhattan district attorney’s office, led by Robert Morgenthau, and the criminal division at Main Justice, then led by assistant attorney general Robert Mueller. The DA’s office wanted to move quickly and secure a guilty plea from BCCI, but the criminal division was more cautious.

Barr and his acting deputy attorney general, George Terwilliger III (who sat behind Barr during the January confirmation hearing), sought to quickly wrap up the case. With Barr’s blessing, Terwilliger brought the entire matter under the control of the deputy attorney general’s office. “It looked like a mess and I went to Bill and told him we need to end this hydra-headed approach,” said Terwilliger, who added that the acting attorney general embraced the strategy.

As a result, DOJ officials including Terwilliger and Ira Raphaelson, who was appointed special counsel for financial cases, went to “make peace” with Morgenthau, according to lawyers who worked on the matter. Raphaelson, a former general counsel at casino company Las Vegas Sands who recently joined White & Case, was also sat behind Barr during the confirmation hearing.

By December the case against BCCI was settled, with all interested US enforcers included in the deal. Barr personally announced that BCCI had pleaded guilty to state and federal criminal charges and agreed to forfeit $550 million to cover losses for victims. The settlement resolved all US charges against the bank.

“It was a clean end to the case,” said Laurence Urgenson, who worked on the investigation as head of the criminal fraud section. “I don’t remember all the signatories to the agreement, but there were lots of them.”

Asked whether the case may have ended differently with another attorney general, Urgenson said: “You never know, but he energised the process. The driving force behind it was Barr.”

He added: “Barr’s mandate was we all worked together. He had real authority.”


Avoid a battle of the press releases

More than a decade later, Barr appeared to echo the principles of the BCCI settlement as the model way to conduct enforcement actions against companies.

Speaking in 2004 at an event hosted by conservative lawyers’ association the Federalist Society, Barr said: “I think one of the problems of the current system is the layering of remedies.”

At the time, Barr was general counsel for telecoms company Verizon Communications. “If a corporation causes harm, it seems to me what we should be seeking is a system of restitution or otherwise remedying the damage,” he said. “If it’s a spill, cleaning it up . . . If you’ve got something wrongfully, you shouldn’t be allowed to keep it.”

Barr bemoaned how multiple government enforcers can punish a company for the same conduct, including regulators and state and federal prosecutors. “That makes it very hard to get a quick resolution on this,” he said. “Get the restitution out, correct the problem, determine if there is a punishment suitable and get it done. And do it in a preclusive way so that it’s not a battle of the press releases.”

The DOJ has to an extent recently tried to address the types of concerns outlined by Barr. In 2018 deputy attorney general Rod Rosenstein – who is expected to leave soon after Barr starts – advised prosecutors in a memo to avoid piling on enforcement actions against companies. He instructed agencies to work together to resolve cases.


Prosecuting companies is “like shooting fish in a barrel”

During the Federalist Society talk, Barr also voiced scepticism of the kind of prosecutor who handles white-collar cases.

“I think, increasingly, very important decisions are being made, particularly in white-collar prosecutions, by people who are very young, very inexperienced and don’t have the breadth of judgement that’s necessary to make these kinds of calls,” he said. “And I think we’ve created an environment where the politically accountable officials – who are the ones who are accountable and should have the judgement – are afraid to intervene at the line level, because then they’ll be called soft on white-collar crime.”

Barr said every senior lawyer “worth his salt” has wished that he or she had worked on the defence side before going into government. “We have to be looking at manning these enforcement agencies with people who have that kind of diversity and breadth of experience,” he said.

Speaking in the aftermath of corporate accounting scandals such as Enron and Worldcom, Barr added: “The prosecutorial power is an awesome power and is subject to abuse, and I think it has been abused in the era of pursuing corporate crime.”

He explained: “Once the criminal weapon is wielded against the company, as a practical matter the company is defenceless. It’s like – I mean I’ve been on both sides – it’s like shooting fish in a barrel. And the prosecutors know it.”

Barr bemoaned the principle of strict liability in US law. He said prosecutors should use their discretion to determine whether an employee’s actions reflect a company’s culture, or whether the company did everything it could to prevent the misconduct. He said these are “very subjective judgments that essentially just give unlimited power to the prosecutor to say, ‘Look, a bad thing happened. I’m holding the corporation responsible.’”

Despite Barr’s experience in the private sector – he also served on the board of US hedge fund Och-Ziff Capital Management after its Foreign Corrupt Practices Act settlement in 2016 – the attorney general nominee will be tough, said Ray Banoun, a corporate defence lawyer who represented BCCI during its criminal prosecution.

“I couldn’t believe it when he was nominated to be AG and he was willing to take it,” Banoun said. “He’s highly professional and relies on experienced staff. He’s a very pro-law enforcement person. He won’t lean back because he was a GC and go easy on corporations.”

Urgenson expressed similar views: “I thought he was innovative and aggressive in terms of enforcement and creative. He likes new ideas.”


This article was originaly published in Global Investigations Review’s Just Anti-Corruption in January 2019.

Visit www.globalinvestigationsreview.com for more content like this.

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