Tough on Corporate Crime?

Image of man holding a protest sign that states "Arrest the Bankers!"
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Image of man holding a protest sign that states "Arrest the Bankers!"

A group of individuals — “flesh-and-blood human beings” as they are called by Attorney General Eric Holder — working for large banks and Wall Street investment firms, wrecked the US economy in 2008 through widespread fraud. Their actions led to between $12 and $22 trillion in losses, according to the Government Accountability Office — the equivalent of between 600 and 1,100 years of street crime! This includes an average loss of about $107,000 per US household, according to an analysis by Pew Charitable Trusts.

The fraud led to the worst recession in America since the Great Depression. Yet, according to an analysis by Propublica, not a single individual was convicted and incarcerated for these crimes. Instead, the mortgage originators and securitzers, the collateralized debt obligation dealers, and the credit agency executives who engaged in the fraud, and the regulators who failed to stop it, paid modest fines relative to the damages they caused, signed immunity agreements with justice agencies while admitting no wrongdoing, or got away with it entirely.

This will not happen again because, according to Attorney General Eric Holder, any “flesh-and-blood human being” who engages in corporate crimes will now finally be prosecuted. Holder recently sent new guidelines about prosecuting corporate criminals to all 93 US attorneys’ offices, stating: “The policy will apply to all future investigations of corporate wrongdoing” (emphasis added). Deputy Attorney General Sally Yates clarified the new policy: “Effective immediately, we have revised our policy guidance to require that if a company wants any credit for cooperation — any credit at all — it must identify all individuals involved in the wrongdoing, regardless of their position, status or seniority in the company, and provide all relevant facts about their misconduct.” According to Yates, the new policy aims “not to recover the largest amount of money from the greatest number of corporations” but “to seek accountability from those who break our laws and victimize our citizens. It’s the only way to truly deter corporate wrongdoing.” In other words, it’s about justice, not money.

The new policy comes as part of an investigation of individuals who allegedly manipulated the $5.3 trillion global foreign-exchange markets. The Justice Department is considering charges against individuals working in at least seven banks, including JPMorgan Chase, Citigroup, and Barclays; and it has requested information about trading activities as part of this probe. Individuals associated with these banks are thought to have purposely inflated the value of holdings to increase their value (i.e., fraud) and then bragged about it online.

Is the Justice Department finally getting tough on corporate criminals? The facts don’t seem to indicate it is.
Consider that the best predictor of future behavior is past behavior. The Justice Department’s historical treatment of large companies and the people who run them demonstrates that nearly every high-level corporate fraud in US history, including the largest ones this century, have not led to criminal convictions, but instead to cash settlements with the offenders. Justice Department practice suggests agreements with corporate offenders are precisely about money, not justice.

As an example, think of HSBC, one of the world’s largest banks. HSBC was caught laundering billions of dollars on behalf of Mexican drug lords, the Iranian government, and other dangerous people and entities. Not a single individual involved in the crimes faced criminal prosecution. Instead, the bank reached an agreement to pay nearly $2 billion to settle the case. It also agreed to strengthen its internal controls as well as not commit any more crimes for five years, according to an article in the Washington Post.
Imagine an individual street criminal stealing hundreds or thousands (or billions!) of dollars and then only facing fines and a promise to develop better self-control! Matt Taibbi’s excellent book, The Divide, is full of proof that, while this is standard operating procedure for corporate offenders, it is not at all how criminal justice agencies are used when dealing with small-time fraudsters and petty street offenders.

Even the new case centering on the global foreign-exchange markets will not likely result in holding top level officials accountable for their crimes. According to an article in the New York Times, “The currency case is expected to ensnare traders but not top-level executives.” Thus, “it may add fuel to the criticism that prosecutors have not charged one top executive on Wall Street.”
Many speculate, in fact, that the announcement by the Justice Department is motivated by a desire to “save face” after it failed to take action against those corporations and individuals who, through their fraud, brought the US economy to its knees.
Ironically, it was Eric Holder himself who, while Deputy Attorney General, authored a 1999 memo titled, “Bringing Criminal Charges Against Corporations.” This “Holder memo,” as it is known now, specified that “Prosecutors may consider the collateral consequences of a corporate criminal conviction in determining whether to charge the corporation with a criminal offense.” As the memo makes clear, prosecutions of corporate offenders that will lead to job losses and economic damage are not likely to occur.
Imagine an individual street criminal not being prosecuted because his imprisonment would harm his children and worsen the economic condition of his family! An Associated Press report, published just days ago, found that one in 14 children has had a parent in prison — nearly five million kids!

So, on the one hand, we have words like these from the “Holder memo” noted above: “[P]rosecutors should apply the same factors in determining whether to charge a corporation as they do with respect to individuals.” And, on the other hand, we have what actually happens in the real world, where corporations (and the “flesh-and-blood human beings” who work for them), are treated vastly differently than your every day, run-of-the-mill, street criminals. This is true even though the former cause as much damage and destruction every week than the latter do over the course of an entire year. And it will likely remain true into the future, even with the new policy of the Justice Department.

Matthew Robinson, PhD
Department of Government and Justice Studies
Appalachian State University

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