Good Girls Don't Go Willfully Blind...

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The United States Attorney of the Northern District of Illinois may have wrested a conviction out of a jury in the trial of Conrad Black and three others, but at least two of the four successful charges contain a logical inconsistency with the entire basis for charging Conrad in the first place. Conrad was convicted of three fraud charges and one obstruction of justice charge. The only mens rea associated with the last charge was the presumed violation of a court order from an Ontario, Canada court. In May of 2005, the SEC sent Conrad Black’s lawyer advance warning of a forthcoming order for him not to remove any documents from his office. The next day, Conrad removed 13 boxes of papers, which he claimed were personal papers. According to the sworn testimony of his lawyer, Conrad had no knowledge of the SEC warning at the time he had removed those boxes and stored than at his assistant’s home. (He was being evicted from the office at the time; his assistant agreed to take them in.) So, going by plain facts, the U.S. State has successfully prosecuted a U.K. citizen for presumably violating a then-extent order, of which he had knowledge, of a Canadian court. The Canadian court, I need hardly add, was not asked about it.

At least two of the three fraud charges involved a company that Conrad Black had a partial ownership interest in: Horizon Publishing. (There was also another company partly owned by Conrad called Bradford, but it played an ancillary role in the case.) Those charges pertained to a non-compete payment which he received for a promise not to compete with Horizon. (Non-compete agreements and payments are common in the media industry.) At the time, Conrad was CEO of Hollinger International, of which American publishing was a wholly-owned subsidiary. The fact of the matter are: Conrad Black, as CEO, sold papers to a company that Conrad Black had a minority stake in. He did not have control of the company; his then-partner, David Radler, did. Horizon paid Conrad a non-compete fee, for which he agreed not to compete with Horizon for a certain period of time. Nevertheless, the prosecution, in its closing argument, sloganized this as Conrad "paying himself to not compete with himself." This slogan clearly implies that Conrad was the proprietor of both companies. Had he been treated as such consistently, he never would have been charged, as the entire point of the case was to administer a whack to CEOs of listed companies who acted as if they were the proprietors of the companies they headed up.

How is it possible for someone to be convicted in a manner both illogical and violative of international jurisdiction? Through a means called the "ostrich instruction" to a jury. It will surprise few to know that the use of the "ostrich instruction" has been one of the guns for deployment in the War on Drugs.

Put simply, the ostrich instruction allows a jury to convict on the basis of someone being "willfully blind" to an illegal activity. The standard example given is something like this: you’re a landlord, and some funny-looking stranger pays you a nice premium for you to rent your place to him. Once he’s in, he and some friends of his observe an unusual sleeping schedule; they seem to be up most of the night. They also behave in such a way that a nosy landlord would begin investigating; you don’t.

One day, though, you find out that the funny-acting tenant happens to be a drug dealer. You’re charged as an accessory because you rented a place to the fellow.

Common-sensically, you have an airtight defense: you didn’t know what he was up to, nor should you have been obliged to become a "Peeping stool" for the police. Thanks to the ostrich instruction, though, that defense is unlikely to wash in a court of law nowadays.

With respect to the obstruction-of-justice charge, Conrad shoulda known that an SEC order was floating his way, even if he wasn’t told by his lawyer. With respect to the non-compete payments, Conrad shoulda known that following customary practices and ranges, as a means of reining in any opportunity to take advantage through self-dealing, wasn’t enough. He shoulda known not to do it at all.

Conrad was a "bad girl." He went walking in the bad neighborhood, and was willfully blind to the "obvious" consequences.

Of course, Conrad Black is a known neo-conservative, and it is fun for many to watch another mighty neo being toppled from his high station. He has, through the media available to him, promoted the War on Terror, and has practically served as a press release distributor for the Bush Administration in this regard. In addition, in a move rare for him, he had ordered a Telegraph column that was skeptical of the War on terror changed to reflect a less anti-Bush stance. Adding to the glee potential is the fact that Patrick J. Fitzgerald, the closest thing that the U.S. prosecutorial system has to a hired-gun lawyer, is the same fellow that got both Conrad Black and "Scooter" Libby prosecuted. Anyone averse to neo-conservatism might very well see lawyer Fitzgerald as a kind of hero, in large part because the War of Drugs isn’t sexy at this time.

What’s done, pending appeal, is done. The above isn’t an attempt to re-fight the case, as it’s over. More useful would be a sketch-out of the implications: adding "defensive nosiness" to commerce; not being idiosyncratic with respect to asset shuffling; hiring experts in iffy situations where none used to be needed; hewing more closely to the just price.

The chief unintended consequence is going to be an even more tightly knit collaboration between CEOs of listed companies and Washington, D.C. There’s no quicker way to stop someone from "playing hardball," by threatening to run to the authorities, than to pull out a picture of you with said authorities and sneer back: "Which one you going to cry off to? Please tell me, as his name is probably in my Rolodex."

There’s no way that prosecutions of this sort will end corporate malfeasance or chicanery. The very ambiguity of the case, highlighted by the fact that the share price of Hollinger Int’l has fallen more under Conrad’s successors than under Conrad himself, means that the typical government-loving CEO is going to take steps to minimize risk — in other words, to nestle even more snugly into the D.C. octopus. Asking what the CEO of, say, Tyson Foods would do now that this precedent has been established should provide enough of an answer.

Daniel M. Ryan [send him mail] is a Canadian with a past. He’s currently keeping an eye on the trial of Conrad M. Black.

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