(Not) Prosecuting Financial Crimes

From Penn Law's RegBlog

(Not) Prosecuting Financial Crimes, by Brandon L. Garrett: It is sobering that discussions about regulatory capture now include the subject of criminal prosecutions. ... That the public is increasingly demanding greater accountability for corporate crimes is a positive development. Take the case of HSBC. The former head of compliance at HSBC announced his resignation at a July 17, 2012 hearing before the U.S. Senate’s Permanent Subcommittee on Investigations. ....

The Subcommittee’s remarkable investigation described not just a weak anti-money laundering program at the multi-national bank, but billions of dollars diverted to Mexican drug cartels, groups linked to terrorism, sanctioned regimes, and others. The scale of the violations was shocking. Prosecutors described concerted efforts to hide dirty money transactions...

The bank was not convicted of any crime..., no employees or officers were prosecuted. At the time, then-Assistant Attorney General Lanny Breuer explained: “Our goal here is not to bring HSBC down, it’s not to cause a systemic effect on the economy, it’s not for people to lose thousands of jobs.” ...Prominent cries of “too big to jail” greeted the agreement. ...

Companies cannot literally be put in jail, of course. And that is why adequately holding them accountable for crimes is so important. Responsible officers and employees can be targeted. ... Yet many companies pay no fine, and even the biggest payments are often greatly discounted. It is not the case that more companies are being prosecuted each year; on the contrary, fewer and fewer are. ...

On the topic of individual defendants: in recent years, almost two-thirds of corporate prosecutions have not been accompanied by any charges filed against employees..., and most who have been were not high-up officers of the companies, but rather were middle managers of one kind or another.  

Will this change? The U.S. Department of Justice has announced a set of recent changes aimed at increasing the focus on individual investigations. Yet there has not yet been any observable change in the charging data regarding individuals. ...  Perhaps more resources for corporate investigations, and a sea change in priorities, are needed to end “too big to jail” once and for all.