Monday, January 20, 2014


By Ronald Fox

In my earlier posting about JPMorgan Chase bankers once again avoiding criminal prosecution in their latest incidence of law-breaking over the blind eye they turned to Bernard Madoff, I expressed guarded optimism that the banking behemoth might not be so fortunate in the future. This might have seemed surprising given that I haven't displayed much political and economic optimism in previous postings.  Alas, I haven't softened.  I've recovered from my moment of fantasy.  Upon prompting from some Phronesis readers, further research, and more thought, I now realize that my post was more wishful thinking than practical wisdom. Shame on me! It’s time to return to reality.

First of all, deferred prosecution agreements (DPA) and non-prosecution agreements (NPA) have been used more frequently than I gleaned from the NY Times, particularly against smaller banks and some big non-U.S.-based banks (DPAs require a judge’s approval, NPAs do not). British banks HSBC and Barclays signed DPAs recently, as did the United Bank of Switzerland (UBS). The American banks, Wachovia and the Bank of New York also recently received DPA’s. JPMorgan Chase itself previously settled an investigation into activities at its derivative division by entering an NPA. These types of agreements have come to be routinely deployed by federal authorities as a middle ground between exclusively civil prosecution and criminal conviction and sentencing. It is rationalized as a way to get at least a little justice-- the proverbial half a loaf--since  criminal trials are  costly, time consuming, and convictions are not guaranteed.

Popular during George W. Bush Administration, and more so under Obama’s, DPAs and NPAs have proliferated as prosecutorial tools against corporations. From 2004 through 2012, the Justice Department entered 242 such agreements with corporations, after agreeing to only 26 over the preceding 12 years. The Justice Department’s Criminal Division now resolves most of its corporate cases using “non-criminal alternatives” to prosecution. From 2010 to 2012, DPAs and NPAs with corporations were used twice as often as the previously preferred plea agreements (46 to 22). Plea agreements have their issues, but at least they make it appear that large corporations did not buy their way out of criminal prosecution.

So despite a well-documented growth in corporate criminal behavior, government authorities have shown themselves to be all too willing to offer non-criminal alternatives to corporate defendants. This situation makes one question how I could suggest that for Wall Street banks, and by implication other big corporations, criminal prosecutions may happen "sooner than we think,” as I stated in my previous JPMC posting. Good question. What was I thinking?

Still there do appear some positive signs that things could change. A growing number of prosecutors, regulators and average Americans have expressed outrage at the “too big to jail” phenomena. And why shouldn’t people be outraged? Government prosecutors would never allow individual Americans who committed such serious crimes as money laundering, insider trading, bribing, tax evasion, security fraud, perjury, and actions that lead to deaths escape criminal prosecution. In California you can get a mandatory 25 years to life for a third strike conviction, even if the last conviction is for a non-violent violation of the law. This double standard is a source of growing discontent.

A number of Federal prosecutors have gotten the message. In a speech to the NY City Bar Association, U.S. Manhattan District Judge Jed Rakoff sharply criticized prosecutors for their preference for offering DPAs and NPAs instead of actually indicting Wall Street wrong-doers. Offended that those responsible for the 2007-2009 economic meltdown have escaped justice, Rakoff said: “the failure of the government to bring to justice those responsible for such massive fraud speaks greatly to weaknesses in our prosecutorial system that needs to be addressed.”

So things are stirring and the times may, in fact, be a-changin, but this must be weighed against the enormous political power of corporate America, especially the Wall Streeters. Not only do they have money power that plays well in Washington and state capitals, they also draw practical immunity from the widespread assumption in higher circles that tougher penalties, including executive prosecution, would cause great damage to the U.S. economy. Attorney general Eric Holder captured this idea well when he said: “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.” Eureka, too big to jail!

What can be concluded from all this? First, I remain committed to my contention that fines alone will not deter corporate criminality. It’s time to indict culpable executives and impose stiffer penalties on companies. Unfortunately, given corporate money power, lax government regulation, a generally business-friendly press, and the natural reluctance to take any actions that might discourage investment and retard economic growth, I must now conclude that there’s good reason to doubt things will change. I would love to see the Justice Department limit the use of DPAs and NPAs and develop guidelines to ensure a principled and consistent approach to the prosecution of corporations. This would reaffirm the rule of law and restore public confidence that government is seriously committed to combating corporate crime. The evidence suggests this ain’t gonna happen.

As I stated in the previous essay, I also would like to see charter revocation, the corporate death penalty, resurrected as a feasible option where particularly onerous violations of the public trust occur. Action against Freedom Industries’ Elk River facility, whose negligence allowed 7500 gallons of the toxic clean coal chemical, MCHM, to seep into the drinking water of nine counties in West Virginia, would be a good start. Don’t hold your breath on this one, however.

So we will likely muddle along, boasting about ever increasing fines while taking the word of Wall Street and other big corporations that they will change their evil ways. But nothing will substantially change unless an organized, determined citizens’ movement demands it. So much for wishful thinking.

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