Surprise me! No High Level Prosecutions over the GFC???

This excerpt from a brilliant article by Jed S. Rakoff – from the New York Review of Books – is essential reading. I do look forward to comments from many denizens of The Pub.

(Image Credit: Throwing stones from the glasshouse)

The final factor I would mention is both the most subtle and the most systemic of the three, and arguably the most important. It is the shift that has occurred, over the past thirty years or more, from focusing on prosecuting high-level individuals to focusing on prosecuting companies and other institutions. It is true that prosecutors have brought criminal charges against companies for well over a hundred years, but until relatively recently, such prosecutions were the exception, and prosecutions of companies without simultaneous prosecutions of their managerial agents were even rarer.

The reasons were obvious. Companies do not commit crimes; only their agents do. And while a company might get the benefit of some such crimes, prosecuting the company would inevitably punish, directly or indirectly, the many employees and shareholders who were totally innocent. Moreover, under the law of most US jurisdictions, a company cannot be criminally liable unless at least one managerial agent has committed the crime in question; so why not prosecute the agent who actually committed the crime?

In recent decades, however, prosecutors have been increasingly attracted to prosecuting companies, often even without indicting a single person. This shift has often been rationalized as part of an attempt to transform “corporate cultures,” so as to prevent future such crimes; and as a result, government policy has taken the form of “deferred prosecution agreements” or even “nonprosecution agreements,” in which the company, under threat of criminal prosecution, agrees to take various prophylactic measures to prevent future wrongdoing. Such agreements have become, in the words of Lanny Breuer, the former head of the Department of Justice’s Criminal Division, “a mainstay of white-collar criminal law enforcement,” with the department entering into 233 such agreements over the last decade. But in practice, I suggest, this approach has led to some lax and dubious behavior on the part of prosecutors, with deleterious results.

If you are a prosecutor attempting to discover the individuals responsible for an apparent financial fraud, you go about your business in much the same way you go after mobsters or drug kingpins: you start at the bottom and, over many months or years, slowly work your way up. Specifically, you start by “flipping” some lower- or mid-level participant in the fraud who you can show was directly responsible for making one or more false material misrepresentations but who is willing to cooperate, and maybe even “wear a wire”—i.e., secretly record his colleagues—in order to reduce his sentence. With his help, and aided by the substantial prison penalties now available in white-collar cases, you go up the ladder.

But if your priority is prosecuting the company, a different scenario takes place. Early in the investigation, you invite in counsel to the company and explain to him or her why you suspect fraud. He or she responds by assuring you that the company wants to cooperate and do the right thing, and to that end the company has hired a former assistant US attorney, now a partner at a respected law firm, to do an internal investigation. The company’s counsel asks you to defer your investigation until the company’s own internal investigation is completed, on the condition that the company will share its results with you. In order to save time and resources, you agree.

Six months later the company’s counsel returns, with a detailed report showing that mistakes were made but that the company is now intent on correcting them. You and the company then agree that the company will enter into a deferred prosecution agreement that couples some immediate fines with the imposition of expensive but internal prophylactic measures. For all practical purposes the case is now over. You are happy because you believe that you have helped prevent future crimes; the company is happy because it has avoided a devastating indictment; and perhaps the happiest of all are the executives, or former executives, who actually committed the underlying misconduct, for they are left untouched.

I suggest that this is not the best way to proceed. Although it is supposedly justified because it prevents future crimes, I suggest that the future deterrent value of successfully prosecuting individuals far outweighs the prophylactic benefits of imposing internal compliance measures that are often little more than window-dressing. Just going after the company is also both technically and morally suspect. It is technically suspect because, under the law, you should not indict or threaten to indict a company unless you can prove beyond a reasonable doubt that some managerial agent of the company committed the alleged crime; and if you can prove that, why not indict the manager? And from a moral standpoint, punishing a company and its many innocent employees and shareholders for the crimes committed by some unprosecuted individuals seems contrary to elementary notions of moral responsibility.

These criticisms take on special relevance, however, in the instance of investigations growing out of the financial crisis, because, as noted, the Department of Justice’s position, until at least recently, is that going after the suspect institutions poses too great a risk to the nation’s economic recovery. So you don’t go after the companies, at least not criminally, because they are too big to jail; and you don’t go after the individuals, because that would involve the kind of years-long investigations that you no longer have the experience or the resources to pursue.

In conclusion, I want to stress again that I do not claim that the financial crisis that is still causing so many of us so much pain and despondency was the product, in whole or in part, of fraudulent misconduct. But if it was—as various governmental authorities have asserted it was—then the failure of the government to bring to justice those responsible for such colossal fraud bespeaks weaknesses in our prosecutorial system that need to be addressed.

465 thoughts on “Surprise me! No High Level Prosecutions over the GFC???

  1. This is a bit of a worry – is Abbott saying it’s OK for young men to pick fights if they have a reason like being provoked?

    Mr Abbott said as a ”father and as a citizen” he was appalled by recent reports of seemingly unprovoked attacks. He said it was one thing for a young man to fight with someone who ”knows what’s going on and where there is at least some kind of explanation for it”. But the ”truly insidious thing”, he said, was ”this rise of the disturbed individual who goes out not looking for a fight, but looking for a victim”

    More Abbott hypocrisy. I’m sure we can all recall a few well publicised examples of Abbott slugging someone or intimidating someone by punching a wall because he was targeting a harmless victim.

    Broelman gets it.

  2. I wonder how long it is going to take before the shit hits the fan and sprays the abbott and his band of lying, scheming mongrels with the excrement they deserve. How much of this bs are Australian voters willing to take?

  3. It appears that Abbott’s attempt at wedging politicians in Indonesia is not working. Amazing, as they are nearing an election.

    It has become apparent, that opposition to Abbott’s action of turning back boats has cross party support.

    Yes all sides are against the actions of Abbott.

  4. Christopher Pyne is now saying that the Howard government had a National Curriculum which Labor implemented.

    JOURNALIST: Do you think you gave the Gillard Government’s changes enough time to take effect?


    Well the Gillard Government hasn’t made any changes to the National Curriculum. The Howard Government initiated the National Curriculum. Then the Gillard Government and Rudd Government got elected and they implemented the National Curriculum that the Howard Government had begun.

    That started in 2010. There have been no changes to the National Curriculum since it started being introduced into schools and I think it’s timely to review it.

    This goes way beyond blatant lies, it’s lying of epic proportions. Pyne justy can’t admit that Labor got that curriculum up and running, he has to erase it all and try to convince us we just imagined it existed.

    There was no national curriculum under the Howard government. All Howard managed was getting a draft History curriculum done. Labor ditched it.

    This discussion paper from April 2007 shows where the National Curriculum was back then – it was still being discussed, it didn’t yet exist.

    Click to access Trends%20In%20National%20Curriculum.pdf

    The enabling legislation for a national curriculum was passed in December 2008.

    Here’s some more information, maybe it should be added to pdf collections. Pyne is intent on wiping out six years of Labor progress on education and a national curriculum. He’ll no doubt have all this taken down and replaced with lies and propaganda as soon as he realises it’s still there.

  5. Faaaark! How surprising:

    Tequila plant agave could produce cost-effective biofuel for farmers

    The agave plant has long been used to make tequila, the drink often blamed for a big night, but it could now help produce a cost-effective biofuel for Australian farmers.

    Scientists say the plants are hardy so they are well suited for drought conditions.

    Associate Professor Nanjappa Ashwath says the stem of the plant is used to make alcohol but the discarded leaves could be used to make biofuel.

  6. So referring to tequila as rocket fuel isn’t all that far-fetched. What a brilliant idea. Instead of devoted hectares of prime farming land to growing stuff to turn into biofuels instead of growing food, agave could be grown on unproductive land. Why hasn’t someone come up with this idea before?

    Now, about that idea to use old chip oil as bio-diesel…..

  7. leonetwo

    They have. India is planting Jatropha for biofuels in places like Rajasthan . It is an excellent choice as it is not a food crop and grows where food crops cannot be grown thus solving the moral problems of taking out food production for fuel. It also provides economic development for what are pretty poor areas.

    In Perth there is a company which produces biodiesel from used vege oil sourced from restaurant, take aways etc.

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