Justice Department Encourages Prosecutors To Get Tougher On Wall Street Crimes
After treating Wall Street with kid gloves throughout the seven years since the financial crisis, the Department of Justice is trying to toughen up its punches.
In a memo to federal prosecutors nationwide on Wednesday, Deputy Attorney General Sally Yates formally urged DOJ staff to pursue criminal charges in white collar criminal cases whenever possible. The memo’s guidance both underscores existing policy and establishes some new practices for cases involving corporate crime, according to the New York Times.
“The public needs to have confidence that there is one system of justice and it applies equally regardless of whether that crime occurs on a street corner or in a boardroom,” Yates told the paper, adding that prosecuting “flesh-and-blood people” for corporate crimes is crucial to shoring up that confidence.
The single most significant item in the Yates memo will require companies under investigation to give up specific information about individual employees involved in the alleged misconduct. Companies that withhold the details prosecutors would need to prosecute individual white collar lawbreakers won’t be considered to be cooperating with investigators – a designation that “can save companies billions of dollars in fines,” the Times notes.
It remains to be seen whether the new rule will actually facilitate the prosecution of bank executives or merely encourage corporations to offer up junior-level scapegoats. But the memo puts pressure on the federal justice system to change tack on white collar crime after years of less-than-aggressive casework under former Attorney General Eric Holder and former Criminal Division chief Lanny Breuer, who each returned to defending corporate clients in private practice upon resigning their public offices.
In both data and anecdotes, the Holder/Breuer era of white collar criminal enforcement looks ugly – and helps explain why Yates’ memo suggests the agency is worried about “the public’s confidence in our justice system.”
Prosecutions of white collar crime fell to a 20-year low on Holder’s watch, meaning the federal government took more back-office crooks to court in the prosperous mid-90s than in the wake of the worst financial crash in 70 years.
The administration took a drubbing in the press for the perception that the justice system works differently for crooks who rock cufflinks, and tried to push back with mixed results. In one embarrassing incident, Holder claimed he’d charged 530 separate people in cases involving 73,000 wronged homeowners – only to have it come out a year later that the actual figures were 107 cases and 17,000 victims. In another, he suggested during Senate testimony that his agency wasn’t really capable of winning major corporate crime cases because Wall Street firms were just too big to hold accountable.
Operating on Bush-era DOJ policy that relied on banks to police themselves, the Holder-helmed DOJ allowed the legal statute of limitations to kick in for crisis-era misdeeds. Civil prosecutions will still be possible for another couple of years in many of those cases, but the agency’s indolent approach to corporate fraud in the early Obama years negated the country’s best chance of holding megabanks accountable.
Holder’s approach did lead banks to settle accusations out of court in several high-profile cases. His leadership helped create the National Mortgage Settlement over the vast foreclosure abuses known as “robosigning” and strike multi-billion-dollar settlements with JP Morgan, Bank of America, and others over alleged abuses before and during the 2008 meltdown.
But those settlements were shrinking violets. The robosigning deal was less effective at punishing banks and provided weaker victims’ compensation than the press releases indicated. The deals over mortgage securities trades cost the banks far less in reality than they did on paper.
In the case of JP Morgan, Holder’s staff was on the verge of actually filing a case when bank chief Jamie Dimon reached out by phone and struck a deal with the nation’s top law enforcement officer that kept the agency’s evidence out of the public eye.
It’s understandable that Attorney General Loretta Lynch is eager to turn the page. It remains to be seen how much the Yates memo will do to change both the actual practice of Lynch’s staff and the public perception of how white collar crime gets treated.
But if the DOJ wants to prevent people from believing there are two separate justice systems for the powerful and the powerless, it’ll need other agencies to stop undermining that case. When prosecutors won criminal guilty pleas from various banks over their conspiracy to rig foreign currency exchange rates for profit this spring, the Securities and Exchange Commission and the Department of Housing and Urban Development went out of their way to ensure the banks wouldn’t suffer too much for their sins.
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This has been reposted from Think Progress.
