The U.S. Department of Justice Handles Banker Criminals Like Juvenile Offenders…Literally

Screen Shot 2014-11-14 at 1.52.39 PMThese agreements were created 100 years ago to give juvenile defendants and first-time offenders a chance to for rehabilitate themselves. Only in the last 20 years have DPAs migrated to the field of corporate criminals, treating them like kids who’ve just gone down a bad path in life.

The Justice Department is leaning on these toothless agreements more and more. Of the DoJ’s 283 deferred prosecution agreements since 2000, half have come since 2010, Reilly found in a working paper for BYU Law Review.

Why has the DoJ been so keen on deferred prosecution since 2010? It coincides exactly with investigations into the 2008 financial crisis.

– From the Guardian article: In market-rigging case, US Justice Department treats corporate criminals like juvenile offenders

We all know by now that if you’re a woman with an overgrown lawn, a child walking by himself to the park, a homeless person, or someone feeding a homeless person, you’re a contemptible criminal in the eyes of the U.S. injustice system. As such, police and prosecutors will come down on you as hard as they possibly can. Subjecting you to the full and brutal force of the law, including jail sentences for non-crimes.

On the other hand, should you be a connected politician, a banker, or other elite member of the status quo, you can do absolutely anything you want. If you’re a politician and get caught it’s true you might lose your job, but don’t fret, a cushy position is waiting patiently for you on the other side of the revolving door.

If you are a banker you’re in even better shape. You get to keep your bonus, most likely your job, and the holding company that employs you will pay a slap on the wrist fine such as we just witnessed in the FX rigging scandal. In fact, it’s gotten to the point that all banker criminality is being handled under a provision of the law originally envisioned for juvenile offenders, known as deferred prosecution agreements (DPA). That’s how lax it is.

Don’t take it from me. The Guardian reports that:

Like so many other cases of egregious financial fraud over the past several years, regulators used softball tactics to go easy on the banks. No bank was even forced to admit wrongdoing in the orders by the US Commodity Futures Trading Commission and the Office of the Comptroller of the Currency. Regulators avoided court and settled for cash, which the traders won’t pay – the bank’s shareholders will. Officials presented a minimal amount of evidence, lacking the full details of the traders’ misconduct. They sought no judicial review.

In short, banks got away with their crimes for a pittance; their stocks even rose on the news of the settlements because the market believes the trouble is over. 

The banks are right. The trouble is over. The US Justice Department, which actually has the power to put people in jail, has opened criminal investigations into the currency rigging. 

Good news? Not exactly. The DoJ is bringing out the biggest softball tactic of all. The DoJ has increasingly used a relatively new and declawed method to deal with the aftermath of the financial crisis: the deferred prosecution agreement (DPA). 

These agreements were created 100 years ago to give juvenile defendants and first-time offenders a chance to for rehabilitate themselves. Only in the last 20 years have DPAs migrated to the field of corporate criminals, treating them like kids who’ve just gone down a bad path in life.

Mary Jo White, who is now the chair of the Securities and Exchange Commission, kicked off the trend of corporate DPAs in a 1994 settlement with Prudential Insurance.

Yep, Mary Jo White. In case you missed it, I exposed her for the crony fraud she is the moment she was nominated. See: Meet Mary Jo White: The Next SEC Chief and a Guaranteed Wall Street Patsy.

No one goes to jail and no one ever gets prosecuted. Under a deferred prosecution agreement, the Justice Department allows corporations to pay a fine, then agree to some enhanced supervision and monitoring. The Justice Department appears to admit this in the US Attorney’s manual, when they describe these deals as “agreements not to enforce the law under particular conditions”.

Needless to say, a deferred prosecution agreement never acts as a deterrent. “Deferred” is a convenient fiction; the Justice Department almost never returns to prosecute. Executives never see a jail cell.

“It makes a mockery of the law,” says Peter Reilly, associate professor at Texas A&M School of Law.

The Justice Department is leaning on these toothless agreements more and more. Of the DoJ’s 283 deferred prosecution agreements since 2000, half have come since 2010, Reilly found in a working paper for BYU Law Review.

Why has the DoJ been so keen on deferred prosecution since 2010? It coincides exactly with investigations into the 2008 financial crisis.

Each deferred prosecution agreement is negotiated individually. There is no thought to creating a future record: no trials, no jury verdicts, no appellate court decisions, no case law and no binding precedent. This makes it impossible to determine the boundaries of the law. The same conduct can be treated differently, depending on the prosecutor.

“Do we really want our federal prosecutors to focus on reforming corporate culture rather than on indicting, prosecuting and punishing?” said Reilly.

The ubiquity of DPAs has led to increased scrutiny around their usage. Brandon Garrett’s book Too Big to Jail has exposed these backroom deals, finding that they turn corporate crimes into “a line-item cost of doing business”. Peter Reilly believes that Congress should act to limit or ban DPAs from the corporate context, but the possibility of that, with Republicans taking over the Senate, is remote.

Meanwhile, hopes that a new regime in the Justice Department might put an end to this practice must contend with this fact: Loretta Lynch, nominated to become attorney general, touts her record on financial fraud with a case against HSBC for facilitating money laundering.

Ah, Loretta Lynch, who besides embracing DPAs, apparently also has a fondness for civil asset forfeiture. See: Wall Street Journal Reports Obama’s Attorney General Nominee Has Been Involved in $904 Million in Asset Forfeitures.

Nothing will change until we start putting people behind bars.

In Liberty,
Michael Krieger

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  1. DPA Schlumberger 2006 http://2001-2009.state.gov/m/ds/rls/67985.htm (DOJ official on SLM board from 2002-2010)

    DPA Schlumberger 2015 http://www.justice.gov/opa/pr/schlumberger-oilfield-holdings-ltd-agrees-plead-guilty-and-pay-over-2327-million-violating-us (DOJ official on SLM board from 2002-2010)

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