America’s Overcriminalization Problem

Originally posted to Bloomberg Law Insight by Brett Tolman | October 19, 2020

We have too many laws that can land someone in jail. Estimates put the number north of 300,000 federal statutes and regulations that can be criminally enforced, and the consequences of America’s addiction to criminalizing nearly everything are sobering—1 in every 4 Americans has a criminal record.

We incarcerate more than 19% of the world’s prisoners but make up only 4% of the world’s population. And despite what “real crime” TV would have you believe, less than 2% of federal criminal defendants receive a trial in which the government’s case is put to the test; the vast majority of persons feel compelled to bargain away their constitutional rights in order to receive leniency because our criminal system is so unbalanced.

It may come as a surprise to some, but the Trump administration has been consistently taking steps to address these concerns. Unlike the president’s signing of the FIRST STEP Act, other measures seem to have been overlooked. Regulatory law isn’t everyone’s cup of tea, but the administration’s work to increase fairness in regulatory enforcement is worthy of more attention.

Agency ‘Guidance Documents’ Are Not Law

A federal prosecution needs to be based upon a law passed by Congress. But hundreds of thousands of regulatory laws adopted by agencies further expand the conduct that can be prosecuted. Those regulations are required to be adopted in a manner consistent with Constitutional due process principles reflected in the Administrative Procedure Act.

However, regulators started taking shortcuts and creating “guidance documents” that don’t satisfy APA requirements, and then relying on these “guidance documents” to bind Americans to standards that were never lawfully adopted. This practice is particularly unfair in a criminal case given the potential consequences to the accused.

Thankfully, the Department of Justice has amended its Justice Manual, a document that provides guidance to prosecutors, to clarify that agency guidance documents are not a substitute for law and that “mere noncompliance” with one cannot be the basis of criminal enforcement.

Several executive orders have expanded this rule to all federal agencies. As a former U.S. Attorney, I think it makes perfect sense for the DOJ to instruct its lawyers not to seek jail sentences for those who have merely failed to comply with a non-binding document, but sadly that has not always been true.

To understand the type of case that federal prosecutors can no longer bring, consider Todd Farha, a former health-care executive convicted of “defrauding” the Medicaid program. Farha was charged with criminal offenses based on the way his company, WellCare, filed expense forms to Medicaid that reflected its interpretation of the law.

The government had a different interpretation. The prosecution relied on informal agency guidance documents to convict Farha, even though the guidance was not binding and had never been the subject of public notice and comment. Unfortunately, a court rejected Farha’s appeal, stating that the company’s obligations were governed not only by the law but also by the informal guidance.

This had very real consequences—in a case that involved no harm to any patients and no “bogus” Medicaid claims, Farha was incarcerated for three years because his company failed to comply with a document that prosecutors can no longer rely upon. And he isn’t the only one.

‘Best Practices’ for Enforcement Fairness

I am glad to see that under current DOJ policy, the type of reasoning applied in the Farha case would no longer be acceptable. I am also encouraged to see that the administration has instituted other procedural protections, as set forth recently by Paul Ray, head of the Office of Management and Budget’s Office of Information and Regulatory Affairs in a memorandum directing agencies to review their practices in light of “principles of fairness.”

Included among the “best practices”:

  • Enforcement actions should be prompt and fair;
  • Targets of investigations should be informed when an investigation is closed;
  • There shouldn’t be multiple enforcement actions based on a single set of facts;
  • Performance metrics of government lawyers should incentivize fairness;
  • Favorable evidence should be provided to the accused;
  • Penalties should be proportionate; and
  • Enforcement should be free of coercion and unfair surprise.

In response to this directive, the Department of the Interior announced that all future referrals to the DOJ for prosecution will state whether the accused knew their conduct was prohibited and have made it clear that their agency will focus its “scarce enforcement resources on those who do not merely stumble into a violation, but choose to break the law.”

This list of procedural fairness measures might seem mundane to a law student—surely these are just restatements of what is already required when the government prosecutes a person. But those who practice criminal law realize how far from these ideals many cases have strayed.

We should all be heartened to see the executive branch taking these steps. There is a dire need to see these safeguards in all criminal cases. I hope that any future administration takes heed of these fundamental principles as it goes about the business of prosecuting its own people.

Brett Tolman is a former U.S. Attorney for the District of Utah and current founder and attorney at the Tolman Group, a firm focused on public policy and government reform.


Former U.S. Attorneys Trumpet Need for Fair Notice in Federal Enforcement

Originally published by Washington Legal Foundation |October 19, 2020

A basic due-process principle for which Washington Legal Foundation has fought for over 40 years is fair notice of one’s responsibilities under the law. Americans can run afoul of hundreds of thousands of laws and regulations, as well as guidance and other informal documents. Government can enforce many laws and regulations through both civil and criminal proceeding. Business entities, just like individuals, deserve fair notice of what is against “the law.” That’s why we’ve worked to popularize the concept of business civil liberties.

One source of rules mentioned above—informal guidance—can easily escape the notice of individuals and businesses. Guidance in the form of letters, internet postings, agency amicus briefs, and advisory opinions need not adhere to the federal Administrative Procedure Act and similar laws at the state level. Regulators can adopt informal guidance without offering public notice or soliciting and reviewing public comment.

Over the past three years, the U.S. Department of Justice has instituted policies that recognize the fair-notice problem posed by enforcing informal guidance. Several senior-level memos directed prosecutors to refrain from civil and criminal enforcement of guidance documents. In 2018, the policies underlying those memos became a formal part of the “Justice Manual” the DOJ’s guide to prosecutors.

As former U.S. Attorney for Utah, Brett Tolman, notes in a Bloomberg Law United States Law Week piece, those important reforms came too late to help those convicted of failing to follow informal regulatory guidance. He spotlights the case of Todd Farha, former CEO of WellCare. Mr. Farha was charged and convicted of defrauding Florida’s Medicaid program because his company’s conduct didn’t conform to informal “guidance” found in the state Medicaid agency’s letters and calculation templates. WLF has examined numerous troublesome aspects of Mr. Farha’s prosecution, including courts’ improper deference to agency determinations (here) and courts’ refusal to hold prosecutors’ to a higher standard of criminal intent (here and here).

Another federal agency, the Office of Information and Regulatory Affairs, a part of the Office of Management and Budget, has recently released a set of “best practices” that federal agencies should embrace when enforcing the law. Mr. Tolman briefly discusses the memo in his Bloomberg piece. Another former U.S. Attorney (for Nevada), Gregory Brower, and fellow Brownstein Hyatt Farber Schreck shareholder Carrie Johnson, describe the memo and what impact it could have in an October 16 WLF Legal Opinion Letter.

After briefly reviewing the memo’s ten pronouncements, Brower and Johnson note:

While these best practices may seem obvious, anyone who has ever represented a client in the context of a federal enforcement action will welcome the Administration’s acknowledgment that basic concepts of fundamental fairness and due process can too often get lost in the zealousness with which many agencies pursue enforcement actions. However, it is not yet clear whether the various agencies will formally adopt these best practices. Some will receive the Memo as mere recommendations that are largely being followed already and that lack the force of law. The more interesting question is whether and how targets of DOJ criminal investigations leverage the Memo.

They conclude:

Whatever the ultimate impact of the Memo on actual government investigations going forward, it is refreshing to see the executive branch at least acknowledge that basic principles of fairness and due process should apply to the enforcement of federal laws and regulations.

Hear, hear.


DOJ Crime Prosecution Policies

Originally published at Washington Legal Foundation by Michael Volkov on November 17, 2015

Over the last thirty years, the U. S. Department of Justice has dramatically expanded criminal prosecutions of corporations and individuals, relying on a steady litany of so-called criminal-prosecution policies. Underlying each of these policies are two significant purposes: (1) to replace prior civil and regulatory enforcement with “new” criminal prosecution tools and (2) to provide criminal prosecutors with ever-increasing leverage over companies and individuals to extract criminal fines and pleas.

As one looks at the handy Washington Legal Foundation Timeline chart, the view across each category reveals a disturbing picture. When it comes to criminal prosecutions, we have seen unprecedented expansion of the use of criminal statutes for “new” purposes such as false statements (18 U.S.C. § 101), conspiracy to defraud the U.S. Government (18 U.S.C. § 371), and honest services fraud (18 U.S.C. § 1346), in a manner that stretches them well beyond congressional intent.

As a former prosecutor and now a defense attorney, I have watched this sea change unfold. Civil enforcement, once viewed as a powerful tool, has now been jettisoned in favor of stiff penalties, threats to companies’ very existence, and incarceration of individuals for crimes that 20 years ago were considered, at most, regulatory or civil infractions.

One area this trend has been constrained, thanks in part to WLF’s consistent and powerful advocacy, is enforcement against off-label “marketing.” Federal prosecutors have targeted drug and device companies’ education of practitioners about lawful (and in some instances, essential) uses of their products with increasingly creative criminal-prosecution strategies, some of which have arisen from civil False Claims Act actions. Such prosecutions have compelled numerous companies and their executives to plead guilty to regulatory crimes under the Food, Drug, and Cosmetic Act. Some companies and executives have, with WLF’s help, fought back with preemptive First Amendment lawsuits.

Companies and individuals subject to regulatory regimes in the defense industry, the financial sector, and the healthcare sector have been subjected to criminal threats of prosecution for otherwise “civil” or “regulatory-type offenses. The Justice Department has embraced this trend with the release of criminal-prosecution memos that pay lip service to the preservation and separation of civil-enforcement programs, but in reality license a new and more dangerous use of criminal laws for regulatory purposes.

Gone are the days when our criminal laws were reserved for the worst of the worst actors; instead, criminal investigations are launched in the hopes of convincing companies to “cooperate” and settle for huge financial penalties in order to avoid collateral consequences from a criminal prosecution.

Prosecutors have extraordinary power under this new regime. Criminal cases are typically resolved favorably for the government—and done so expeditiously. Companies and individual that often face severe penalties have no choice but to cooperate and settle or plead guilty in the hopes of avoiding jail.

Traditional civil enforcement has been relegated to a backwater area for Justice Department officials. This new regime has blindly ignored potential pitfalls arising from the improper sharing of grand-jury information for civil enforcement purposes. Parallel investigations of civil and criminal violations are less frequent because prosecutors can use criminal tools, or the threat of criminal prosecution, to force companies to conduct their own internal investigation, report back to the government on their findings, and then have prosecutors dispense justice in the form of corporate settlement or plea agreements.

No longer does the judiciary exercise a meaningful role in the criminal prosecution of companies. In fact, in some specific areas such as foreign bribery or foreign-export sanctions violations, judges rarely have an opportunity to interpret and resolve important statutory issues because so few individuals decide to take a criminal case to trial.

The Justice Department’s latest criminal-prosecution statement, known as the Yates Memorandum on Individual Accountability, further erodes the procedural and substantive boundaries between civil and criminal enforcement matters. The Yates Memo orders civil and criminal prosecutors to coordinate and share information yet again, ensuring that culpable individuals are identified and prosecuted either criminally or civilly.

The Justice Department’s criminalization of enforcement programs is facing greater resistance and calls for reform. With the help of WLF and other organizations, lawmakers are finally paying attention to the impact these enforcement programs have on corporations, shareholders, individuals, the U.S. economy, and the public interest. We can only hope that some meaningful reform occurs to return the proper balance of justice in prosecution of corporations and individuals.

*Prior to entering the private practice of law, Mr. Volkov spent 17 years as a federal prosecutor in the U.S. Attorney’s Office for the District of Columbia. He maintains a highly popular FCPA blog, Corruption, Crime & Compliance.