We've been speaking about banker ethics that week, though it is still unclear what, exactly, supervisors want when they call for it. Maybe the network-of-regulatory-networks the Financial Stability Board will come up with an answer. The G-7 has just asked it to develop a code of ethics that would apply to all of the banks across the world.
“This kind of malpractice has got to do with the dominant company culture but not just that -- it’s also about the behavior of individuals, who should not be absolved from responsibility,” Bundesbank President Jens Weidmann said in the German city of Dresden on Friday, announcing the G-7’s lead. The code “should be a voluntary self-commitment made by the financial industry, an international initiative,” he said.
“Currently a certain number of disparate codes exist in different jurisdictions, and they were often ignored,” Banque de France Governor Christian Noyer said after the Dresden meeting. “We need to pull all this together, so that we have a code that is coherent and applicable everywhere.”
It will be interesting to see how voluntary this voluntary code is. And how the FSB is going to harmonize the cultures of, say, Japanese conglomerates and American four branchers. But it is either an example of how financial regulation is increasingly done at the global level ... or an example of regulators saying: we give up! All our rules are meaningless! Please be nicer!
My soon to be colleague Peter Conti-Brown and Brookings author (and future Glom guest) Philip Wallach are debating whether the Fed had the power to bail out Lehman Brothers in the middle of the financial crisis. The Fed's lawyers said, after the fact, that no, they didn't have the legal power to bail out Lehman. Peter says yes they did, Philip says no, and I'm with Peter on this one - the discretion that the Fed had to open up its discount window to anyone was massive. In fact, I'm not even sure that Dodd-Frank, which added some language to the section, really reduced Fed discretion much at all. It's a pretty interesting debate, though, and goes to how much you believe the law constrains financial regulators.
as I discuss at much greater length in my forthcoming book, The Power and Independence of the Federal Reserve, the idea that 13(3) presented any kind of a statutory barrier is pure spin. There’s no obvious hook for judicial review (and no independent mechanism for enforcement), and the authority given is completely broad. Wallach calls this authority “vague” and “ambiguous,” but I don’t see it: broad discretion is not vague for being broad. In relevant part, the statute as of 2008 provided that “in unusual and exigent circumstances,” five members of the Fed’s Board of Governors could lend money through the relevant Federal Reserve Bank to any “individual, partnership, or corporation” so long as the loan is “secured to the satisfaction of the Federal reserve bank.” Before making the loan, though, the relevant Reserve Bank has to “obtain evidence” that the individual, partnership, or corporation in question “is unable to secure adequate credit accommodations from other banking institutions.”
In other words, so long as the Reserve Bank was “satisfied” by the security offered and there is “evidence”—some, any, of undefined quality—the loan could occur.
I (and most observers) read the “satisfaction” requirement as meaning that the Fed can only lend against what it genuinely believes to be sound collateral—i.e., it must act as a (central) bank, and not as a stand-in fiscal authority. The Fed’s assessment of Lehman Brothers as deeply insolvent at the time of the crisis meant that it did not have the legal power to lend. Years later, we have some indication that this assessment may have been flawed, but I don’t take the evidence uncovered as anything like dispositive. As I note in the book, the Fed’s defenders make a strong substantive case that the Fed was right to see Lehman as beyond helping as AIG (rescued days later) was not.
And the debate will be going on over at the Yale J on Reg for the rest of the week. Do give it a look.
Lawsky had a tough reputation, and was probably the most challenging state corporate regulator since Spitzer (the Times: " a polarizing four-year tenure that shook up the sleepy world of financial regulation in New York"). And I can say that I knew him when - we were in the same unit at DOJ. But really, I'm awfully impressed that 1. he is leaving to start his own firm, continuing the craze for boutiques that has animated investment bankers, and now, perhaps their former regulators? And 2. this excellent front page from the Village Voice.
Apparently, the new firm will specialize in digital security. Congratulations, Ben!
There's a proposal out there, with support from various surprising corners of the political spectrum, to get rid of the NY Fed's place on the FOMC, on account of it being too close to Wall Street, big banks, and so on. I wrote about it for DealBook - do check it out. A taste:
I have my doubts about any legislation that threatens the central bank’s independence, but would evaluate it by looking to three of my pet axioms of financial regulation.
When I apply these axioms, I conclude that the New York Fed should not lose its vote. The short-term benefits are unclear, making the change look like a symbolic effort to shift the long-term focus of the Fed away from Wall Street. But Wall Street is important, and deserves its focus. There’s no reason to believe that the New York Fed will do a better or different job on Wall Street if it loses its automatic vote.
Do let me know what you think, either in the comments or otherwise.....
Greenberg is suing the government for treating his firm unconstitutionally differently than other firms bailed out during the financial crisis - he argues, correctly, that AIG got killed, and was used as a vehicle to pay AIG's struggling counterparties out at 100 cents on the dollar. Whether that's a taking, given 1) that the government couldn't possibly treat everyone identically during the crisis, and 2) that AIG would have failed without the government's intervention, making the measure of damages difficult, is why many people have found the case to be unlikely.
So now that Greenberg is getting some good rulings, and sympathetic questions from the bench, the received wisdom seems to be that he is doing surprisingly well (though if he wins, an appeal is certain). I haven't read every transcript, but I do wonder whether the "day in court" effect is at work here. In appellate cases, I think that oral argument is an excellent predictor of the outcome. But at trial, with appeal likely, savvy judges often let the side that is going to lose put on plenty of evidence, and do well with motions, so that there can be no allegation of bias, and to minimize things to complain about on appeal. They get, in other words, their day in court. I'm not sure if that's what's going on there, but I know that when I was a litigator, I wouldn't want the court to treat long-shot adversaries with contempt, but rather with tolerance.
How can we persuade bankers to follow the law? Other regulators looks to a familiar calculus inspired by Holmes' "bad man." You write regulations that are clear enough, and threatening enough, to induce obedience by someone who, left to their own devices, would do the things the law is meant to prohibit. So you provide for treble damages for illegal combinations in restraint of trade, you beef up enforcement where detection is difficult, and so on.
But banking regulation is increasingly talking less about clear laws, more about broad principles, and also about "ethical banking." The New York Fed President has brought the ethics question up, as has the Comptroller of the Currency. And check out, via Justin Fox, this new oath that every Dutch banker must take:
I swear within the boundaries of the position that I hold in the banking sector
- that I will perform my duties with integrity and care;
- that I will carefully balance all the interests involved in the enterprise, namely those of customers, shareholders, employees and the society in which the bank operates;
- that in this balancing, I will put the interests of the customer first;
- that I will behave in accordance with the laws, regulations and codes of conduct that apply to me;
- that I will keep the secrets entrusted to me;
- that I will make no misuse of my banking knowledge;
- that I will be open and transparent, and am aware of my responsibility to society;
- that I will endeavor to maintain and promote confidence in the banking system.
So truly help me God.
I'm unaware of other regulatory schemes do this sort of thing, though lawyers certainly have codes of conduct, and I suppose that accountants do as well. What is it supposed to do? Three possibilities:
- Regulators think that ethical bankers are likely to be the traditional "boring bankers" who took less risks - and believe that talking to them about ethics and requiring oaths will induce this sort of weltanschauung.
- Regulators don't know what to do to make banking safe, and so are delegating the safe banking question to the industry, at least in part, by lecturing them about ethics, and hoping that they'll devise practices in this light that will make banking safer
- This is an effort, by regulators and bankers, to rehabilitate the reputation of the industry by proclaiming ethics commitments.
If you have views about the new role of ethics in banking regulation, let me know in the comments.
One of the things you now have to do if you're a bank with over $50 billion in American assets is to file a resolution plan, or living will, with the authorities - this basically states how you are going to dispose of the company if it becomes insolvent. After passing all the big American banks through an annual set of stress tests, the regulators have turned their attention abroad:
In their review of the resolution plans from BNP Paribas, HSBC Holdings plc, and The Royal Bank of Scotland Group plc, the agencies noted some improvements from the original plans. However, the agencies have jointly identified specific shortcomings with the 2014 resolution plans that will need to be addressed in the 2015 submissions.
It's annoying enough to be told by some foreign regulator that you aren't sufficiently prepared for a disaster, given that you're home regulator is telling you that you are. But it must be especially annoying if you are a state-owned bank, which RBS is, to the tune of 66% of its outstanding shares. That's almost a foreign relations issue. And given that the resolution of international banks like these is one of the most difficult issues facing bank regulators - there has been a failed effort to create a framework going on since Lehman Brothers failed so chaotically - it must be grating to be told to revise the plan:
The agencies will require that the annual plans submitted by these three institutions on or before December 31, 2015, demonstrate that the firms are making significant progress to address all the shortcomings identified in the letters, and are taking actions to improve their resolvability under the U.S. bankruptcy code. These actions include:
- Amending the financial contracts entered into by U.S. affiliates to provide for a stay of certain early termination rights of external counterparties triggered by insolvency proceedings to the extent those rights are not addressed by the International Swaps and Derivatives Association 2014 Resolution Stay Protocol;
- Ensuring the continuity of shared services that support critical operations and core business lines throughout the resolution process; and
- Demonstrating operational capabilities for resolution preparedness, such as the ability to produce reliable information in a timely manner.
Those are actual requirements! The first one anyway. The other two could be goalposts that just get moved further away next time. Anyway, one question in the brave new world of international banking supervision is whether supervision is a tool that home banks are using for competitive advantage against foreign banks. It will be interesting to see whether this sort of charge is leveled at this sort of action.
The 31 banks subject to stress tests - to see how their positions would hold up if the economy hypothetically tanked - all passed, good news for them, and especially for Citi, which failed the last one, and vowed not to do so again. More here, featuring a picture of former law professor/current Fed board member Dan Tarullo, who supervised the test. And if you're thinking of investing in banks, the Times has a chart of the percentage of money-like assets in the banks' total assets mix. If you are risk averse, you want to invest in Deutsche Bank or Discover. But I think leverage is the most powerful force in the world, so hello, Goldman Sachs and Morgan Stanley!
Here's an interesting profile of the guy who is going after banks that held money eventually used in terrorist activities by clients - a potentially long list of defendants, if he can make the legal theory stick. He came up with that theory, by the way, by noodling it out with one of his law school professors. HT: Matt Levine
It has been a pleasure to guest-blog for the last two weeks here at the Glom. (Previous posts available here: one, two, three, four, five, six, seven, eight, and nine.) This final post will introduce the book that Lynn Stout and I propose writing to give better direction to business people in search of ethical outcomes and to support the teaching of ethics in business schools.
Sometimes bad ethical behavior is simply the result of making obviously poor decisions. Consider the very human case of Jonathan Burrows, the former managing director at Blackrock Assets group. Burrows’s two mansions outside London were worth over $6 million U.S., but he ducked paying a little over $22 U.S. in train fare each way to the City for five years. Perhaps Burrows had calculated that being fined would be less expensive than the inconvenience of complying with the train fare rules. Unluckily, the size of his $67,200 U.S total repayment caught the eye of Britain’s Financial Conduct Authority, which banned Burrows from the country’s financial industry for life. That’s how we know about his story.
But how do small bad ethical choices snowball into large-scale frauds? How do we go from dishonesty about a $22 train ticket to a $22 trillion loss in the financial crisis? We know that, once they cross their thresholds for misconduct, individuals find it easier and easier to justify misconduct that adds up and can become more serious. And we know that there is a problem with the incentive structure within organizations that allows larger crises to happen. How do we reach the next generation of corporate leaders to help them make different decisions?
Business schools still largely fail to teach about ethics and legal duties. In fact, research finds “a negative relationship between the resources schools possess and the presence of a required ethics course.” Moreover, psychological studies demonstrate that the teaching of economics without a strong ethical component contributes to a “culture of greed.” Too often business-school cases, especially about entrepreneurs, venerate the individual who bends or breaks the rules for competitive advantage as long as the profit and loss numbers work out. And we fail to talk enough about the positive aspects of being ethical in the workplace. The situation is so bad that Luigi Zingales of the University of Chicago asks point-blank if business schools incubate criminals.
New business-school accreditation guidelines adopted in April 2013 will put specific pressure on schools to describe how they address business ethics. Because business schools are accredited in staggered five-year cycles, every business school that is a member of the international accreditation agency will have to adopt ethics in its curriculum sometime over the next few years.
We hope that the work outlined in my blogposts, discussed at greater length in my articles, and laid out in our proposed book will be at the forefront of this trend to discuss business ethics and the law. We welcome those reading this blog to be a part of the development of this curriculum for our next generation of business leaders.
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My previous blogposts (one, two, three, four, five, six, seven, and eight) discussed the dangers of granting intracorporate conspiracy immunity to agents who commit coordinated wrongdoing within an organization. The last two blogposts (here and here) highlighted the harm that public and judicial frustration with this immunity inflicts on alternative doctrines.
In addition to exacerbating blind CEO turnover, substituting alternative doctrines for prosecuting intracorporate conspiracy affects an executive’s incentives under Director’s and Officer’s (D&O) liability insurance. This post builds on arguments that I have made about D&O insurance in articles here and here.
In traditional conspiracy prosecutions, the Model Penal Code (MPC) provides an affirmative defense for renunciation. The MPC’s standard protects the actor, who “after conspiring to commit a crime, thwarted the success of the conspiracy, under circumstances manifesting a complete and voluntary renunciation of his criminal purpose.” This means that the executive who renounces an intracorporate conspiracy faces no charges.
In contrast with conspiracy prosecutions, responsible corporate officer doctrine and its correlates fail to reward the executive who changes course to mitigate damages or to abandon further destructive behavior. Although the size of the damages may be smaller with lesser harm if the executive renounces an organization’s course of conduct, the executive’s personal career and reputation may still be destroyed by entry of a judgment. Modest whistle-blower protections are ineffectual.
Specifically, because of the way that indemnification and D&O insurance function, the entry of judgment has become an all-or-nothing standard: an employee’s right to indemnification hinges on whether the employee is found guilty of a crime or not. To receive indemnification under Delaware law, for example, an individual must have been “successful on the merits or otherwise in defense of any action, suit or proceeding.” Indemnification is repayment to the employee from the company; D&O insurance is a method that companies use to pass on the cost of indemnification and may contain different terms than indemnification itself.
Indemnification and D&O insurance are not a minor issues for executives. In fact, under many circumstances, employees have a right to indemnification from an organization even when the alleged conduct is criminal. Courts have acknowleged that “[i]ndemnification encourages corporate service by capable individuals by protecting their personal financial resources from depletion by the expenses they incur during an investigation or litigation that results by reason of that service.” And when hiring for an executive board, “Quality directors will not serve without D&O coverage.” Because of this pressure from executives, as many as ninety-nine percent of public U.S. companies carry D&O insurance.
So what does this standard mean for executives prosecuted under responsible corporate officer doctrine instead of for traditional conspiracy? Executives are incentivized either not to get caught, or to perpetrate a crime large enough that the monetary value of the wrongdoing outweighs the potential damage to the executive’s career. Because an executive’s right to indemnification hinges on whether he is found guilty of a crime or not, he has an enormous incentive to fight charges to the end instead of pleading to a lesser count. Thus, unless the executive has an affirmative defense to charges, like renunciation in traditional conspiracy law, there is no safety valve. Litigating responsible corporate officer doctrine cases creates a new volatile high-wire strategy. Moreover, as discussed in my last blogpost, responsible corporate officer doctrine imposes actual blind “respondeat superior” liability. Regardless of the merits, the executive may be penalized. So you can see the take-home message for executives: go ahead and help yourself to the largest possible slice pie on your way out the door.
I argue that in sending this message, and in many other ways, our current law on corporate crime is badly broken. My last blogpost for the Glom will introduce the book that Lynn Stout and I propose writing to give better direction to business people in search of ethical outcomes.
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My previous blogposts (one, two, three, four, five, six, and seven) discussed why conspiracy prosecutions were the best method to penalize coordinated wrongdoing by agents within an organization. Using alternative doctrines to impose liability on behavior that would otherwise be recognized as an intracorporate conspiracy results in flawed incentives and disproportionate awards.
The fundamental problem with substituting responsible corporate officer doctrine and control person liability for reforming the intracorporate conspiracy doctrine is that these alternative doctrines represent exactly what Professor Martin objects to: actual imposition of blind “respondeat superior” liability. For example, under these doctrines, “in most federal courts, it is not necessary to show that the corporate official being charged had a culpable state of mind.” Instead, the issue before the court is merely whether the officer had control and responsibility for the alleged actions. Accordingly, it is not a defense to control person liability that the officer did not “knowingly participate in or independently commit a violation of the Act.”
But simply penalizing the officer who is in the wrong place at the wrong time does little to define and encourage best practices. Moreover, with these and other explosive hazards for corporate service, it should be no surprise that top executives are demanding and receiving ever-increasing compensation for often short-term positions. Since 2009, the year that the NSP case establishing “control person” liability was settled, the discrepancy in pay between top management and the average worker has been growing dramatically. In 2013, the CEO of J.C. Penny Co., for example, was exposed for making 1,795 times what the average U.S. department store employee made. From 2009 to 2013, as measured across Standard & Poor’s 500 Index (S&P 500) of companies, “the average multiple of CEO compensation to that of rank-and-file workers” has risen to 204, an increase of twenty percent.
It is true that the financial crisis did reduce executive compensation packages before 2009, and that there has been a historical trend towards the growth of executives’ salaries as a multiple of average workers’ salaries. For example, “[es]timates by academics and trade-union groups put the number at 20-to-1 in the 1950s, rising to 42-to-1 in 1980 and 120-to-1 by 2000.” But the jump in executives’ salaries from 2009 has been extraordinary. The new emphasis on vicarious liability for individuals under the responsible corporate officer doctrine since that date must be considered part of executives’ demands for such high compensation in exchange for their risky positions.
The average duration of a CEO’s time in office has diminished as well. In 2000, the average tenure of a departing S&P 500 CEO in the U.S. was ten years. By 2010, it was down to eight years. In 2011, merely a year later, the average tenure of a Fortune 500 CEO was barely 4.6 years. In 2013, that former CEO of J.C. Penny Co. served for only eighteen months.
With an eighteen-month tenure, how much can the chief executive of a large company discover about the wrongdoing that his or her new company is committing? Furthermore, how much can that person design and institute good preventative measures to guide his or her subordinates to avoid that harm? A blindly revolving door for CEOs does not help those interested in effectively reducing the wrongdoing of agents within the corporation. Incentives without intracorporate conspiracy immunity would be different because they would reward the agent who abandons a conspiracy. (More about this argument here, here, here, and here.)
My next blogpost will examine how substituting alternative doctrines for prosecuting intracorporate conspiracy affects incentives under Director’s and Officer’s (D&O) liability insurance.
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My previous blogposts (one, two, three, four, five, and six) discussed why conspiracy prosecutions should be used to reach coordinated wrongdoing by agents within an organization. The intracorporate conspiracy doctrine has distorted agency law and inappropriately handicaps the ability of tort and criminal law to regulate the behavior of organizations and their agents.
My Intracorporate Conspiracy Trap article argues that the intracorporate conspiracy doctrine is not properly based in agency law, and that it should most certainly not be applied throughout tort law and criminal law. As a result of the immunity granted by the doctrine, harmful behavior is ordered and performed without consequences, and the victims of the behavior suffer without appropriate remedy. My Corporate Conspiracy Vacuum article argues that public and judicial frustration with the lack of accountability for corporate conspiracy has now warped the doctrines around it.
Courts have used a wide variety of doctrines to hold agents of enterprises responsible for their actions that should have prosecuted as intracorporate conspiracy. Some of these doctrines include:
But the new applications of these alternative doctrines are producing distortions that make the doctrines less stable, less predictable, and less able to signal proper incentives to individuals within organizations.
An example of how piercing the corporate veil has been used to defeat intracorporate conspiracy immunity can be seen in the Morelia case. A previous blogpost discussed how the intracorporate conspiracy doctrine has defanged RICO prosecutions of agents and business entities. In Morelia, which was a civil RICO case, the federal district court, obviously outraged by defendants’ behavior in the case, explicitly permitted plaintiffs to pierce the corporate veil to avoid application of the intracorporate conspiracy doctrine. In a creative twist invented from whole cloth to link the two doctrines, the Morelia court overruled its magistrate judge’s recommendation to announce:
"Since the court has determined that plaintiffs have properly alleged that the corporate veil should be pierced, the individual defendants may be liable for corporate actions and any distinction created by the intra-corporate doctrine does not exist."
Regarding its test for piercing the corporate veil, the Morelia court further overruled its magistrate’s recommendation by focusing on plaintiffs’ arguments regarding undercapitalization, and its decision included only a single footnote about the disregard of corporate formalities.
The Morelia court is not alone in its frustration with the intracorporate conspiracy doctrine and in its attempt to link analysis under the intracorporate conspiracy doctrine with the stronger equitable tenets of piercing the corporate veil. More subtly, courts across the country have started to entangle the two doctrines’ requirements as intracorporate conspiracy immunity has become stronger and courts have increasingly had to rely on piercing the corporate veil as an ill-fitting alternative to permit conspiracy claims to proceed. Even large public companies should take note. No public company has ever been pierced, but a bankruptcy court recently reverse-pierced corporate veils of the Roman Catholic Church, which is far from a single-person “sham” corporation. My Corporate Conspiracy Vacuum article discusses additional examples and repercussions for incentives under each of these alternative doctrines.
My next blogpost will examine how frustration with intracorporate conspiracy immunity has led to volatility in responsible corporate officer doctrine and related control person liability. Ironically, executive immunity from conspiracy charges fuels counterproductive CEO turnover.
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My previous blogposts (one, two, three, four, and five) introduced why conspiracy prosecutions should be used to reach wrongdoing by agents within an organization. The 2012 prosecution of Monsignor Lynn for twelve years of transferring predator priests from parish to parish at the command and for the benefit of the Archdiocese of Philadelphia was defeated by the intracorporate conspiracy doctrine. Moreover, this was not the first time that the Roman Catholic Church had used the doctrine to help its bureaucrats escape liability for suppressing sex abuse cases.
In 1997, employees of the Roman Catholic Church in Connecticut were alleged—very much like Lynn—to have covered up the sexual misconduct of a priest, enabling him to continue to abuse children entrusted to the Church’s care by virtue of his office. When sued for civil conspiracy by the victims, the employees’ defense was that they were acting in the best interest of the corporation.
The Connecticut court found that the test for whether an agent is acting within the scope of his duties “is not the wrongful nature of the conspirators’ action but whether the wrongful conduct was performed within the scope of the conspirators’ official duties.” If the wrongful conduct was performed within the scope of the conspirators’ official duties, the effect of applying the intracorporate conspiracy doctrine is to find that there was no conspiracy. Because covering up the priest’s sex abuse was in the best interest of the corporate organization, the court found that the employees were all acting on behalf of the corporation. The court never reached the issue of whether the employees’ actions rose to the level of a civil conspiracy. Under the intracorporate conspiracy doctrine, it was a tautology that no conspiracy could be possible.
This case is interesting not only because it documents the way that the intracorporate conspiracy doctrine protects enterprises from inquiry into conspiracies, but also because of the subsequent history of its allegations. The full extent of the Bridgeport Diocese’s wrongdoings—if current public knowledge is indeed complete—only came to light in December 2009, twelve years after the 1997 case. It took twelve years, the combined resources of four major newspapers, an act displaying public condemnation of the Roman Catholic Church by members of the state legislature, and finally a decision by the U.S. Supreme Court to release the documents that could have become the basis of the intracorporate conspiracy claim in 1997. There is still no conspiracy suit or any criminal charge against the Diocese. Additional details about the case are available in my article The Intracorporate Conspiracy Trap. The article will be published soon in the Cardozo Law Review, and it is available in draft form here.
Astonishingly, none of the extensive news coverage about the sexual abuse cases in Bridgeport over those additional twelve years has connected these facts to the original 1997 case defeated by application of the intracorporate conspiracy doctrine. If the intracorporate conspiracy doctrine had not provided immunity, the case might have revealed the Diocese’s pattern of wrongdoing long beforehand and in a much more efficient way.
My next blogpost reveals additional dangers from the spread of the intracorporate conspiracy doctrine: frustration with the intracorporate conspiracy doctrine has started to distort other areas of law.
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My previous blogposts (one, two, three, and four) introduced why conspiracy prosecutions should be used to reach wrongdoing by agents within a business organization. The same legal analysis applies to religious organizations.
We should have been able to charge Monsignor Lynn and the Archdiocese of Philadelphia that directed his actions to hide the sexual abuse by priests with criminal conspiracy. Instead, Pennsylvania charged Lynn with two things: child endangerment and conspiracy with the priests.
As international news outlets later reported, Lynn could not be guilty of child endangerment because the state’s statute could not apply to an administrative church official who did not directly supervise children.
Lynn could not be guilty of conspiracy with the priests because he did not share their “particular criminal intent.” As the jury understood, Lynn was not trying to help a predator priest get from parish to parish so that “he can continue to enjoy what he likes to do.” Lynn was trying to protect the reputation of his employer, the Archdiocese—if the priests benefitted, that was a side issue.
So why didn’t the prosecution charge Lynn and the Archdiocese with conspiracy? It was the Archdiocese that directly coordinated and profited from Lynn’s actions. The intracorporate conspiracy doctrine, as discussed before, would bar that prosecution. In Pennsylvania, it is “well-settled that a corporation cannot conspire with its subsidiary, its agents, or its employees.”
Finally, considering other options, Lynn could not have been charged with possible crimes such as obstruction of justice. Lynn was too good: Lynn and the Archdiocese were so successful at covering up the sexual abuse and silencing victims, there was no ongoing investigation to obstruct. “Aiding and abetting” the Archdiocese’s cover-up of the sex abuse would have been difficult to pursue (see more here) and is not allowed under RICO in the Third Circuit.
My next blogpost will demonstrate that the Monsignor Lynn case was also part of a pattern by the Roman Catholic Church in America to use the intracorporate conspiracy doctrine to hide the coordinated wrongdoing of its agents to cover-up sexual abuse by priests. Fifteen years before prosecutors attempted to try Monsignor Lynn, the silenced Connecticut sex-abuse case showed the Church how effective this defense could be.
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