Too Big to Jail: Letting White Collar Criminals Off the Hook

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Allowing major corporate wrongdoers to escape criminal penalties by using heavy fines or deferred prosecution agreements makes it harder to deter financial crime and creates “disturbingly high” rates of repeated white-collar fraud, according to a forthcoming paper in the Yale Law Review.

It also reduces public confidence by creating “a popular narrative that prosecutors permit (financial) managers to buy their way out of trouble,” wrote Nick Werle of Yale Law School.

The paper, entitled “Prosecuting Corporate Crime When Firms Are Too Big to Jail,” suggests that the belief that some firms are so critical to the economic system that “the government cannot credibly threaten them” with criminal sanctions has given those  large corporations in turn little incentive to curtail crimes such as fraud, bribery, environmental safety offenses, antitrust violations, and money laundering.

Fines are almost always the only penalty they face.

“Relatively few” individuals are ever prosecuted, and even when they are, their sentences are “generally more lenient” than defendants who are “outside the corporate crime context,” the paper said, noting that corporate defendants are sentenced to jail less often and serve shorter sentences.

According to Werle, the idea that some firms are “Too Big To Jail” (TBTJ) means in practice that “prosecutors will not hold them accountable” for any crimes they commit.

“When firms become TBTJ, deterrence breaks down,” he wrote.

In fact, Werle added, when a corporation contemplates “a highly profitable but illegal opportunity,” it may figure into its costs the size of a possible corporate fine if they are caught, knowing that they can play the “TBTJ” card if investigated. In other words, they will never be fined an amount that they can’t cover because the government won’t want to bring down a corporation important to the economy.

In such a calculation, the corporation may decide that crime does pay.

The paper calls for prosecutors to alter their strategies and investigative tactics, to prosecute culpable individuals, reduce their reliance on corporate cooperation, and insist on structural reform of the companies. It zeroes in on the government’s reliance on Deferred Prosecution Agreements (DPA).

In a DPA, the government agrees to accuse the company of wrongdoing while not prosecuting a crime; afterward, there is usually a large fine, and the company says it will clean up its act. Whether it really does so is debatable, said Werle.

According to Werle, “the list of corporate recidivists with multiple convictions in quick succession includes many corporations with dominant positions in their industries, including BP, ExxonMobile, Pfizer, GlaxoSmithKline, AIG, Barclays, HSBC, JPMorgan, UBS, and Wachovia.”

There was widespread criticism over the lack of prosecutions of TBTJ global corporations after the 2008 financial crisis, noted Werle.

The criticism intensified after the March 2013 Senate Judiciary Committee hearings on the DPA arranged by the Department of Justice (DOJ) with the global bank HSBC for facilitating money laundering by Mexican cartels and others.

“Despite the lurid details, the bank paid $1.92 billion and no individuals were prosecuted,” Werle wrote.

A high-level DOJ official admitted during the hearings that prosecutors consult with regulators and change strategy when told bringing a case might wreak serious economic damage.

“Deferred prosecution agreements are the norm, even though they are subject to few statutory procedures or binding regulations,” wrote Werle.

While in recent years, those charged with white collar crimes have been prosecuted, it’s rarely the case with people employed by a TBTJ company. Many have pointed to the existence of the “revolving door” between DOJ and the private sector.

“Critics have described a culture of deference to corporate defendants, an unwillingness to accept the risks of taking complex white-collar cases to trial, and an eagerness to settle, even if that meant forgoing cases against individuals,” said the paper.

Werle called for legislative reform that would introduce “binding procedural requirements and meaningful judicial review.”

Prosecutors should not “rely on corporate fines to do the job alone,” he concluded.

A complete copy of the paper is available here.

Nancy Bilyeau is Deputy Editor-Digital  of The Crime Report. She welcomes readers’ comments.

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