Under the radar, the Obama administration has exhibited a
disturbing tendency to criminalize business. Recently the
administration announced that it was opening a criminal
investigation into the activities of Goldman Sachs in selling
securities backed by subprime mortgage loans. Now comes word that
the Food and Drug Administration is considering imposing criminal
penalties against Johnson & Johnson’s McNeil Consumer
Healthcare unit for a “pattern of non-compliance” with rules
governing the manufacture of pharmaceutical products. This
criminalization of business represents a dramatic expansion of
government power that is unwarranted.
In the case of McNeil, the FDA’s action is prompted by a
series of recalls of contaminated over-the-counter children’s
medicines. While this is a potentially serious matter, FDA
official Joshua Sharfstein recently acknowledged
in congressional testimony that “the risk for any child in
the United States was remote” and that “[s]o far, FDA has no
cases with evidence that a product quality issue contributed to a
significant adverse health outcome.” Moreover, Mr. Sharfstein’s
testimony makes clear that the FDA was long aware of potential
problems at McNeil’s facilities. As he acknowledged, “Before
2009, FDA investigators identified several problems with cGMP
compliance at facilities run by McNeil.”
Nonetheless, only now has the FDA suggested that criminal
penalties are warranted. Moreover, recent comments by FDA
officials indicate that this latest action may be part of a wider
program to make its regulatory program more “visible” by, among
other things, “strengthening…criminal enforcement of FDA’s
laws.”
The history of the government’s use of criminal laws to
sanction corporate behavior is not a happy one. Government often
uses the threat of criminal sanctions merely to harass
corporations or for publicity purposes. For example, in the
1990s, the Department of Justice opened a criminal probe into the
conduct of the tobacco industry with much fanfare. However, no
one was ever prosecuted for any criminal violations. Rather, the
criminal investigation appeared to be merely a means of harassing
an industry that was unpopular.
In the few cases in which the government has pursued
criminal prosecutions, the consequences have been profoundly
negative. For example, the government’s pursuit of criminal
charges against accounting firm Arthur Andersen led to the
breakup of the company and the loss of thousands of jobs. As a
result, the lives of numerous individuals who had nothing to do
with any alleged wrongdoing were turned upside down. These
consequences were particularly troubling given that the Supreme
Court ultimately overturned the company’s criminal conviction,
finding that the jury instructions given at trial suffered from a
series of flaws.
This history demonstrates that government should exercise
extreme caution before exercising its power to initiate criminal
proceedings. This is particularly true in the current climate,
where business is already struggling with economic uncertainty
and new regulatory burdens imposed by the Obama administration.
Adding another concern for business is the last thing we need
right now.
