Bifurcating Justice
The Cossack, where free people reign!
In December of 2001, the Enron corporation filed for bankruptcy. It was the first among equals of collapsed and disgraced companies that resulted in the Sarbanes-Oxley Act of 2002. Other corporations include Worldcom, the owner of telecommunications giant MCI, as well as Tyco, a manufacturer of fire suppression and security equipment. Corporate executive wrongdoing including embezzlement, fraud and other crimes swept the country. In the case of Enron, the company manipulated their accounting structure by parking energy trading losses off the balance sheet and energy trading profits to the balance sheet. Enron was violating Generally Accepted Accounting Principles (GAAP) by removing energy trading losses from it balance sheet when reporting to investors and to the Securities and Exchange Commission. Sherron Watkins, an Enron accounting executive, gave Ken Lay, Enron’s CEO, a detailed report of accounting issues including losses on their energy trading division and issues with off balance sheet and income statement accounts. Lay discussed the accounting issues with Enron’s Internal Audit Department, lawyers and their external audit firm Authur Anderson. He was told they were in compliance with GAAP rules and there was nothing to worry about.
The US Department of Justice (DOJ) got involved in the case based on a referral from the Securities and Exchange Commission. The DOJ investigated the matter and charged Lay, President Jeff Skilling and CFO Andrew Fastow for perpetrating one of the biggest frauds in history. Skilling and Fastow were prosecuted and sentence to long prison terms. Lay died prior to indictment.
In court, part of the defense was that the Enron’s internal audit department and Arthur Anderson had reviewed their accounts and determined that their accounting practices did not violate GAAP. The DOJ disagreed and, in part, made the case that both auditors had a conflict of interest because they worked for Enron and could not be objective.
The government should, but normally does not, take its own advice. The DOJ is the highest prosecution function in the United States, enforcing federal law throughout the country. The Attorney General is the chief prosecutorial employee in the United States. Likewise, the Attorney General leads the Federal Bureau of Investigation (FBI), the federal government investigative arm. Together, and with other departments, they form the first step in how we hold people accountable - investigation and prosecution. There are other institutions and roles what I call the US accountability system: courts, corrections (prisons), parole boards, etc.
It makes sense that an investigation and prosecution by independent third parties is good because it is fair to both the law and to the company or individual being investigated. First party investigations (self-investigations) are not legitimate because of the conflict of interest associated with one investigating his own organization, boss or self. One cannot view the facts with balance when the outcomes may impact his own career.
The expectation that private companies be held accountable by government 3rd party institutions raises question about the DOJ itself. When the DOJ investigates individual citizens, businesses and charities, it does so as a 3rd party disinterested in the outcome except as the facts dictate - completely prudent. However, when the DOJ investigates a federal government agency, a federal politician or employee, the investigation becomes a first party investigation. The DOJ reports to the government; the AG serves at the pleasure of the president. Therefore, prosecuting the wrong person, defined as a presidential ally, based on the facts might yield the AG’s employment terminated. This is a real conflict of interest and is not prudent or acceptable.
There are real cases that have exposed this first party, conflict of interest problem for the DOJ. If you recall the case of former Secretary of State Hillary Rodham Clinton (HRC), who was investigated for having a email server that violated government information security protocols. FBI Director James (Jim) Comey led an investigation that uncovered facts that should have led to a prosecution. In other words, had HRC been an executive in a public company or just a private citizen who committed the same act, this would have undoubtedly ended in a prosecution. Of course, it may not have resulted in a conviction, but at least the facts would have been presented and a jury would decide guilt, or would have maintained innocence. Lorretta Lynch, the AG at the time, decided not to prosecute, though the facts by themselves seemed to lead to a prosecution.
The case is not about whether HRC deserved to beat Donald Trump in the general election for president in 2016, nor is it about whether HRC should have been convicted of a crime. She is certainly innocent until proven guilty. This is a showcase of how the DOJ is simply unable to be that objective, third party when it comes to prosecuting the wrongdoing of government employees. Given the 2.85 million government employees accessing trillions of dollars of taxpayer money and assets, we are presented with a massive problem. The DOJ has real disincentives to prosecute the wrongdoing of employees or contractors who work for the federal government, particularly those who are allied to the administration. This first party problem represents real damage to the United States - government insiders get away with millions of dollars of stolen property, fraud, dissemination of legitimate government secrets, potentially even violence. I like to think that most government employees are simply doing their jobs, paying their taxes and working hard like everyone else. However, the closer one gets to be an ally of the administration, the opportunity grows for criminal activity, just as the HRC email case demonstrates. There are other issues in our accountability system that I will discuss in the future, but this is the corner stone.
So how do we combat this real threat to legitimate accountability within the government? One theory is to rely on the government to hire “honest people.” This sounds nice and the government likes it because it leaves power relationship alone. It is also doubtful that it even works. President Barak Obama rarely had his judgement called into question by hiring Loretta Lynch as AG. She was, by all accounts, a good person. Yet, the country was still subject to the email and server debacle.
Proposal
I believe the issue here is one of structure, because incentives and disincentives are wrapped into structural relationships. The main problem with the DOJ is that it reports to the government, thus reducing its ability to objectively identify, evaluate and prosecute crime in the government. There are simply too many incentives to fail to prosecute criminals within its own organization. But what would happen if we delinked the reporting relationship of the DOJ by bifurcating it into two:
Status Quo DOJ: This organization would have much of the current responsibilities and jurisdictions as it has now, except that it would no longer have government employees, institutions or contractors in its jurisdiction. This jurisdiction would be removed.
New DOJ: This organization would include lawyers, paralegals, support staff and leadership, similar to Status Quo DOJ, but would be limited to a jurisdiction of federal government employees, institutions and contractors. They would have the ability to prosecute federal government employees based on the current law set by Congress without fail. Prosecutorial Discretion would discontinued, this organization would not have the option of simply not prosecuting people they like. The organization certainly would have investigators, could deliver warrants and subpoenas, as well has have
The key to the New DOJ is that it has to be actually separate from the government, otherwise implementation is pointless. This mainly means reporting structure and budgeting. I propose a board of directors structure of citizens to be offered the position randomly with set, but staggered terms. This group would hire leadership, set the budget and sign off on the internal rules. Budgeting would have to go around Congressional appropriations, otherwise Congress would have inordinate power over a New DOJ that could potentially prosecute one of their members.
The real question I get from critics is what happens when the two organizations use prosecutions to destroy each other - it is a good question. I call it the Hatfields/McCoys Theorem. I believe the federal courts would sort this out through trial. Over time, we would see the courts set precedents and the two organizations would be able to coexist.
Certainly there would be legal and even constitutional issues realizing this structure, but from an organizational structure perspective it would ensure that government employees (and by extension, the American people) get actual justice, not the party affiliated kind. Gone would be the days where sucking up to the president or senior members of Congress allow one to embezzle, take bribes or kickbacks, or even be violent.
What do you think about this forward looking perspective? Let me know in the comments.