Too Big to Frighten

From our It’s About Time file: “Justice Department Sets Sights on Wall Street Executives.”  Attorney General Lynch recently instructed federal prosecutors to concentrate more on prosecuting individual executives, rather than just their employers, for financial crimes, and to pressure Wall Street firms to turn over evidence about their employees’ misconduct.  That this new policy should warrant a headline speaks volumes about the nature of prosecutions for corporate crime since the 1980’s.

Crime fiction provides the chance to right wrongs–to neatly tie up loose ends, and to punish the guilty.  But real life is messy, and no portion of it is messier than corporate crime. In crime novels, the bad guys get their comeuppance.  In the real-life world of corporate crime, there is no guarantee of justice.  In fact, the odds of even being prosecuted are dismally low, perhaps lower than those for violent crimes.  According to researchers at Syracuse University, prosecutions of white-collar crimes are at a twenty-year low, down more than thirty-eight percent from 1995.  This decline has come under the management of not only a traditionally pro-business Republican administration, but two Democratic presidents.  Moreover, it comes in the face of the massive financial shenanigans that produced the Great Recession.  In contrast to the savings and loan scandals of the 1980’s, which generated over a thousand felony convictions, prosecutions following the recent recession have been limited to low-level mortgage fraud cases, and the overall rate of white-collar prosecutions has continued to decline.

Prosecutors can point to a number of large-dollar civil settlements in financial cases, particularly those involving foreign currency and interest rate manipulation.  These are typically deferred-prosecution deals in which no one admits fault or goes to jail.  When it comes to actually punishing and deterring crime, however, establishing fault and going to jail may be the entire point.  Even before the recent policy change, prosecutors were acknowledging that they may need to tear up deals with big banks such as UBS and Barclays, who are showing signs of committing repeat offenses.  And why not?  With no threat of jail, and any fines coming from the pockets of shareholders rather than individual bankers, what do wrongdoers have to lose?  Nor has the threat of more onerous regulation had much effect.  Goldman Sachs CEO Lloyd Blankfein likened regulation to “. . . background noise . . . So it is a fact of life, but no choice, no problem. It’s something that we have to deal with.”  Lloyd sounds scared to death, doesn’t he?

Whatever the reasons for the government’s lack of aggressiveness, there is no indication that the culture of greed that caused the problems has in in any way changed. Just ask former United Airlines CEO Jeff Smisek, who was terminated for bribing a public official.  The company then severely reprimanded, with the company turning him out into the street and bringing its own civil action against him.  Well, actually that didn’t happen.  Jeff was rewarded with a severance package of over $20 million.  Far from cooperating in the prosecution of its crooked executives, companies typically make all that darned inconvenience and hassle worth their while.  

Perhaps the latest change in policy by the Justice Department will have an impact.  But those of us who are cynical about the effects of lobbying and campaign contributions are not holding our collective breath.  For wrongdoers in Corporate America, it’s likely to be business as usual.  And for writers of corporate thrillers, it’s an embarrassment of riches..