In her first major criminal settlement since becoming Attorney General, Loretta Lynch has delivered, trussed and on a platter, five of the world’s biggest banks—Citigroup, JPMorgan Chase, Barclays, Royal Bank of Scotland, and UBS. The five will actually plead guilty to specific crimes involving manipulation of foreign currency markets and will pay close to $6 billion in penalties for illegally collaborating to drive trading prices up and down. As one not-so-bright bank executive pronounced slyly in an online chat room that the self-named “cartel” used to communicate, “If you ain’t cheating, you ain’t trying.”
Although the settlements send a strong message to future cheaters, the striking thing about the announcement was that the new Attorney General extracted something truly unusual: guilty pleas from these large corporations. Her predecessor, Eric Holder, famously settled time and again for “deferred prosecution agreements,” no matter how egregious the corporate crimes. Such deals collected large amounts of money but omitted the crucial element of an admission of guilt, and the accompanying payments were no more or less than a cost-of-doing-business tax for corporations that already don’t pay enough into the public fisc. In the process, one primary goal of the criminal justice system—expressing society’s condemnation of immoral behavior—flew right out the window.
Holder’s cramped justification for the agreements was that forcing a guilty plea might put the banks out of business because they could lose their licenses to operate as a result. Citing his interpretation of what caused the collapse of accounting firm Arthur Andersen in 2001, Holder pushed this false narrative harder and longer than his counterparts in any other Administration, reaching the nadir when he allowed HSBC, the fourth largest bank in the world, to avoid admitting criminal culpability for laundering money for Mexican drug cartels and serving as banker to terrorist states like Libya.
Despite the claims of Holder and the business commentators who supported his policies, the specifics of the Arthur Andersen collapse are more urban legend than cautionary tale. Andersen was Enron’s accountant. When its massive, fraudulent and self-dealing market-manipulation scheme came crashing down, vaporizing billions of investor dollars, Andersen’s clients, as well as the accountant and consultant teams that served them, fled from the firm. By the time federal prosecutors indicted the firm, it was in meltdown and would not have survived in any event. The indictment charged that Andersen partners ordered the shredding of tons of documents revealing the massive fraud it had helped Enron to perpetrate. A jury found Andersen guilty and a federal court of appeals upheld that verdict. But in 2005, four years after Enron’s implosion, the Supreme Court quibbled with a relatively small aspect of the jury instructions given by the trial judge and reversed the conviction. But the proposition that, without the indictment, Andersen would be in business today relies on the outlandish notion that clients would have remained loyal to the primary outside architect of perhaps the most destructive crash of a single corporation in American history. More than that, it suggests that the federal government should ignore such high-stakes criminal behavior.
To implement its deferred prosecution policy, DOJ routinely allows economists hired by corporate criminal targets to traipse through its offices delivering presentations that supposedly show why an indictment could put their multi-national clients out of business, causing the economy to lose X-thousand jobs, “just like Arthur Andersen.” These analyses conveniently ignore the availability of waivers to prevent the yanking of business licenses, as the five banks rounded up by Loretta Lynch have obtained. As to the point, imagine a similar process in the context of street crime: should a drug lord be allowed to send representatives to explain that he supports his relatives, buys athletic equipment for local children, and funnels large sums of money into the local economy? Why should the white-collar perpetrators of a massive and destructive conspiracy get a better deal?
Firms like JPMorgan and Citibank won’t go out of business because prosecutors compel them to admit their crimes. Such admissions are the first step toward prosecuting executives who invented the scheme. Lynch’s DOJ says it is actively investigating those cases rather than walking away as Holder did before her. She’s on the right track and off to an excellent start.
Steinzor is the author of “Why Not Jail? Industrial Catastrophes, Corporate Malfeasance, and Government Inaction.”