Although the Justice Department, along with New York’s U.S. Attorney’s office, have extracted record fines from companies that committed fraud in recent years, many have noted that the department has not prosecuted a single executive from the investment banks responsible for the housing and banking crisis.
Deputy U.S. Attorney General Sally Q. Yates released a memo on Wednesday calling for changes in how the Justice Department prosecutes corporate crime cases. The changes are focused on holding individuals who commit wrongdoing accountable and leaving them unable to hide behind the shield of their companies. In a Wednesday interview, Yates said “Corporations can only commit crimes through flesh-and-blood people. It’s only fair that the people who are responsible for committing those crimes be held accountable. 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.” The announcement is the first major policy change for the department since Attorney General Loretta Lynch took over in April. It is also a self-acknowledged response to criticism that too many of the executives who oversaw the fraud that caused the 2008 economic collapse have avoided prosecution, despite the agency collecting a record level of fines from the companies.
In the memo, the Justice Department tells prosecutors to focus on individuals from the beginning of investigations, and to not provide credit for companies unless they turn over evidence of individual wrongdoing “regardless of their position, status or seniority.” The memo was sent to the 93 U.S. Attorneys’ offices throughout the U.S., ordering them not to offer “protection from criminal or civil liability,” unless under extraordinary circumstances. Yates added, “The rules have just changed. Effective today, if a company wants any consideration for its voluntary disclosure or cooperation, it must give up the individuals, no matter where they sit within the company.” According to the new standards described in the memo, “all decisions declining to prosecute potential culpable individuals must be approved by the U.S. Attorney of the head of the division handling the case.”
Although the Justice Department, along with New York’s U.S. Attorney’s office, have extracted record fines from companies that committed fraud in recent years, many have noted that the department has not prosecuted a single executive from the investment banks responsible for the housing and banking crisis. This comes even as the Justice Department levied an $8.9 million penalty from France’s largest bank BNP Paribas, in which the company itself was convicted of a crime, and a $3.15 penalty of banking giant Goldman Sachs in 2014 along with several other huge fines and settlements. Yates acknowledges in the memo that pursuing charges against individuals means “substantial challenges;” however she adds that this why the Justice Department needs to strengthen its plan for investigating corporate fraud.
Instead of the traditional prosecutorial method of investigations leading to charges and pleas, the trend for authorities in these cases has been to offer “deferred prosecution agreements.” Since the 2008 crisis, most companies upon being suspected of fraud have hired attorneys to conduct an internal investigation, turning evidence over to the Justice Department. Evidence from these investigations usually set the parameters for a settlement negotiation between the parties. This method has essentially set up a form corporate probation. Under the new focus however, the attorneys conducting the investigations will be required to list the names of the individuals responsible for the wrongdoing. The policy changes only affect pending and future cases, meaning that criminal investigations that have been ongoing for some time like the one involving executives’ foreknowledge of its ignition-switch defect will likely be spared from the new policy. It is unknown if the changes will lead to more or less cooperation from companies that are being targeted.
Bloomberg Business – David McLaughlin and Tom Schoenberg
New York Times – Matt Apuzzo and Ben Protess
USA Today – Kevin Johnson