University of Michigan law professor David Uhlmann, in Saturday’s New York Times:
Prosecutors have an obligation to make principled decisions. If corporations commit serious crimes, they should be prosecuted; they should not be allowed to buy their way out of criminal liability. On the other hand, if criminal charges are not warranted, the government should not threaten prosecution as a way to pressure companies to accept these “noncriminal alternatives.” [Emph. added]
The professor is half right. Too often, the deferred-prosecution agreements the Department of Justice reaches with supposed corporate miscreants look a lot like plain old shakedowns: we’re the government, and unless you sign this document and write us a big check, we’re going to make your life hell. So shareholders and innocent employees end up paying, in cash and reputation, for the misdeeds of a few, who essentially pay no price at all. I’m having trouble seeing how that’s fair.
But Uhlmann’s alternative, actual prosecution of corporations, isn’t any better. Again, shareholders and employees end up paying for the sins of a few bad apples. It’s the same result as you get with a deferred prosecution, except riskier and more expensive. Worse, were you to indict, say, a (highly levered) pillar of the global financial system, bad things might happen to the economy overall. And neither prosecution nor deferred prosecution, I’ll wager, does much to deter future bad behavior.
People occasionally accuse me of being a hopeless apologist for big banks and the people who run them. Guilty as charged! Having followed the banking business for over 30 years, I’ve gotten to know an awful lot of bankers. The vast majority are decent, hardworking people. But also over 30 years of covering banking, I’ve become a big believer in that old line that says that, when trying to make sense of some fiasco other, never ascribe to malice what you can just as easily explain by incompetence. That’s certainly true in banking. People keep thumping for this or that evil industry executive to be tossed in the hoosegow for bringing about the credit crunch. Baloney. The crunch happened because too many people-at the rating agencies, in government, at the banks, among securities buyers-didn’t know what the heck they were doing. The government can indict all the banks it likes, but those prosecutions won’t likely do much to prevent people from being just as greedy and thick-skulled the next time around.
Having said all that, I will now concede (and please don’t let this get around) that there are indeed some bad actors in the banking business who occasionally do some very bad things. When these folks get caught, they need to be punished. Which is to say, they need to be prosecuted personally, and hopefully sent to jail. No deferred prosecution deals, no indicting of the overall company. Prosecute the individuals. Now that would concentrate people’s minds, up and down the organization. I continue to be amazed, for instance, how it is that federal prosecutors let HSBC off with a deferred-prosecution deal (including a $1.9 billion penalty) after they found out the bank had been laundering money (nearly $1 trillion) for drug traffickers in South America. It was an egregious violation of federal banking laws, carried out willfully. This was not the sort of violation, in my view, that can be made right by writing a $1.9 billion check. If there were ever a time in which the DoJ was justified in locking some bankers up, this was it.
Instead, HSBC got off with a deal. Professor Uhlmann can talk all he wants about how the government should be more aggressive in going after the big banks, but unfortunately, the message has already been sent. If you’re a banker behaving badly, you don’t have much to fear.
What do you think? Let me know!