The Criminal Employee: Will the Company be Indicted, Too?
By: DAVID L. LILLEHAUG
January 2003
Let's assume that a trusted employee has not just done something wrong, but has committed a crime on company time to increase the bottom line. Perhaps the employee defrauded one of your customers or conspired with a competitor to fix prices. By law, this behavior makes your company criminally responsible.
Will your company be indicted? How you prepare for and handle the situation may have enormous consequences for shareholders, managers, other employees, and your own career.
The decision to indict is the prosecutor's, who will determine whom, whether, when, and how to charge. While at the federal level indictments come from the grand jury, it usually follows the prosecutor's lead - although not quite to the extent of being willing to "indict a ham sandwich," as famously claimed.
When I was the United States Attorney for Minnesota, I used a number of factors to decide whether to seek to punish a company for its employee's transgressions.
The most important factor was the employee's rank. If the employee is a top manager, the company may not escape indictment. On the other hand, a lower-ranking person off on a frolic and detour might go to prison while the company makes good with a civil settlement.
I also looked at whether the company cooperated with law enforcement. Strong cooperation includes uncovering and promptly disclosing wrongdoing, terminating the offender, giving investigators access to employees with knowledge, not claiming available privileges, and working quickly and voluntarily to make things right with the victims.
A company's history and culture are important as well. If the company has a record of engaging in fraudulent activity, or has narrowly escaped charges before, the decision to indict is easier. On the other hand, a good corporate citizen with a solid ethics program may deserve a pass, at least the first time around.
I considered the impact of prosecution on the company and community. In some situations, a criminal prosecution can be a corporate death sentence. The effects on innocent employees and a community's economy are valid, although not conclusive, considerations.
Whether a prosecution would be a deterrent to other companies is another important factor. Sometimes an indictment sends a needed message to the rest of the industry. Other times a message that corporate cooperation will be rewarded resonates more.
Finally, although the U.S. Attorney's Manual states that time and resources "deserve no weight and should not influence the [prosecution] decision," there is no question that most prosecutors consider this factor, at least subconsciously. Law enforcers have budgets and have to set priorities. They must use their discretion to get the most justice for their buck.
This is the perspective of a former prosecutor. My colleagues in the group are defense lawyers, who bring a different perspective to the issues. If your company uncovers or suspects employee wrongdoing, quick decisions must be made. The best time to deal with a potential indictment is before it happens. Chances are that together we can give you a pretty good sense of how investigators and prosecutors will react to your situation.