DOJ Is Still More Bark Than Bite When It Comes to Corporate Crime

I suggest reading the whole article.

http://www.thefiscaltimes.com/Columns/2015/02/13/DOJ-Still-More-Bark-Bite-When-It-Comes-Corporate-Crime?utm_campaign=541c47950e351dbe08037e5f&utm_source=boomtrain&utm_medium=email&bt_alias=eyJ1c2VySWQiOiI1ZmEyY2UwYi00ZWY5LTQ3MmMtODYyYy00MDI1NjVlM2UzMGEifQ%3D%3D

By David Dayen
Feb. 13, 2015

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Officials there clearly view the “corporations are people” line in the most superficial way, believing that if they force guilty pleas out of corporations, particularly big banks, they will have silenced critics who condemn the lack of accountability for anyone involved in the financial crisis. But the real point behind “corporations are people,” transferred to the financial fraud space, is that individuals commit whatever crime occurs, not the faceless legal entity owned by shareholders.

So forcing the corporation to plead guilty, especially when the Justice Department clears the way by eliminating any consequences from that plea, allows the people behind the corporation to get away with breaking the law. It only infuriates critics more to witness the smug self-satisfaction of Attorney General Eric Holder and his colleagues, boasting of their ultimately empty “get-tough” attitude.

Keep in mind that the Justice Department had to be pushed into doing even this. Prior to this interest in the guilty plea, it mostly enacted “deferred prosecution agreements” with corporations, agreeing not to seek criminal charges in exchange for a cash settlement and some enhanced supervision and monitoring. The U.S. Attorneys’ Manual literally calls these “agreements not to enforce the law under particular conditions.” The conceit is that DoJ can change corporate behavior from the inside with a gentle nudge rather than with the hammer of prosecutions. This predictably leads to failure. Shareholders, not executives, paid the fines.

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The Justice Department has engaged in over 140 deferred prosecution agreements since 2010, including a $1.9 billion deal with HSBC over a decade of money laundering. HSBC was revealed through a massive disclosure this week as a corporate recidivist, repeatedly violating international tax laws by helping 100,000 bank clients avoid their obligations.

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Widespread scrutiny over the Justice Departments deferred prosecution deals led to the next innovation: forcing some out-of-the-way unit of the corporate parent to admit guilt. When DoJ settled with the Royal Bank of Scotland in 2013 over rigging Libor, the benchmark interest rate, it forced a guilty plea out of the bank’s Japanese subsidiary. It made a similar maneuver with the Japanese unit of UBS.

Those Japanese subsidiaries did not operate in the United States, and the convictions did not deter the U.S. business of RBS or UBS in any way. Ultimately, the international agency overseeing those Japanese entities sentenced them to just a one-week ban on derivative trading. Japanese authorities did nothing. And this week it was revealed that UBS has continued to break U.S. laws, ignoring a prior deferred prosecution agreement with DoJ, which obviously had no impact on their behavior.

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If the fear is that pushing too hard to hold corporations accountable can send a ripple effect through the economy and harm innocent bystanders, the best way to get around that is by charging the actual individuals responsible. No corporation ever failed because an executive had to be replaced, and if it does collapse, it probably isn’t a very stable corporation to begin with.

The lack of sanction for individuals drives financial crime. After all, the Justice Department has pursued its prosecution strategy for many years, and new crimes get revealed seemingly with each passing day. Putting individual lawbreakers first could at least make executives think twice about using their corporation as a criminal front.

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Last December, New York Department of Financial Services superintendent Benjamin Lawsky forced the CEO of mortgage servicing company Ocwen, William Erbey, to resign as part of a settlement over abusive practices toward homeowners. It wasn’t a prosecution (Lawsky doesn’t have the authority to do that) but it did signal that individuals will have to answer for their own misdeeds. As Lawsky has said, “When a corporation does wrong, it has to be that individuals who work at the corporation have done wrong.”

People like me who harp on this point are not seeking random vengeance. We’re interested in the integrity of the criminal justice system.

[Allowing the rich to get away with crime degrades respect for morality for the population as a whole.]

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