Hiltzik: A two-strikes law for repeat corporate criminals

We know what to do with individual criminals who keep breaking the law: we toss the book to them. California and at least 27 other states have three-strike laws that give repeat offenders sentences up to life imprisonment.

Corporations, not so much. The list of American companies is full of large corporations that have violated federal and state laws time and time again, sometimes more than 100 times.

Often times, they settle federal charges by paying a few million dollars in fines and penalties and promising not to repeat the crimes (sometimes without admitting or denying them) in exchange for postponement or non-prosecution, provided they hold their noses clean.

We have no tolerance for companies that … continue to commit crimes.

Deputy Attorney General Lisa O. Monaco

Then they break the law again. Allegedly.

The best example of how to ride this carousel comes from JPMorgan Chase. As I reported last year, JPM paid the government a record $ 920 million fine for an eight year plot to manipulate the financial markets.

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Dan M. Berkovitz, a member of the Commodity Futures Trading Commission, called “the extent of wrongdoing and market damage … unprecedented.”

The Justice Department has cut the deal as a “Deferred Prosecution Agreement,” in which it pledged not to impose harsher penalties if the bank has no problems for three years.

The problem is that JPMorgan was given a three-year suspended sentence back in May 2015 for manipulating the foreign exchange market, for which the bank pleaded guilty to a single conspiracy count.

In the deal, the bank was prohibited from “committing another crime that violates United States federal law.”

However, according to prosecutors, the bank continued to breach the law while the earlier settlement was negotiated and lasted seven months after the bank promised not to break the law anymore.

“The prosecution of white-collar crime has been a joke so far,” says Dennis Kelleher, head of Wall Street watchdog Better Markets.

That could change. October 28th, Deputy Atty. General Lisa O. Monaco has issued a grave warning to an audience of corporate defenders. “We will not hesitate to hold companies accountable for violating the law,” she said. This means that “the people who commit corporate violations and benefit from them” and their employers will be prosecuted.

Monaco specifically targeted postponement and non-prosecution agreements. She mentioned that two multinational corporations had recently received a notice from the Justice Department that they were being investigated for violating the provisions of previous agreements.

Monaco did not name the companies, but did refer to Swedish telecommunications company Ericsson and Scotland-based bank NatWest.

Ericsson said on Oct. 21 that it received notice that it breached a 2019 agreement in which it admitted it paid bribes and paid a $ 1 billion fine. Ericsson says the Justice Department attributed the breach to a failure to provide required documents and factual information.

NatWest announced on Sept. 3 that the Justice Department accused it of violating a 2017 deal for “spoofing” – filing fraudulent deals in mortgage-backed securities and other investment markets. The company has announced that it has found more suspicious deals allegedly made in 2018.

The lenient approach to white-collar crime goes back decades and transcends party lines. During the Obama administration, Justice Department chiefs let it be known that they didn’t want local prosecutors to file lawsuits against company executives unless they could guarantee a win, Kelleher recalls.

That was the death knell for most of these cases, as aspiring Justice Department attorneys knew that complicated trials against large, wealthy corporations would never lead to a blatant outcome. Nobody would risk their career throwing the dice in the courtroom.

Under Donald Trump, tolerance for corporate violations was burned into the bones of the department and law enforcement collapsed. Only 94 charges were brought in 2020, the lowest number in at least a quarter of a century and a two-thirds decrease from the high water mark of 296 in 2000.

Leniency agreements – DPAs and NPAs – have now become the preferred solution. In 2020, these agreements accounted for 32% of all corporate case outcomes, the highest since 1996.

“Declining law enforcement and increasing leniency agreements are not a sign that American companies have gotten better at complying with the law,” said Public Citizen advocacy group in May.

“On the contrary,” reported Public Citizen, “they are indications that despite Trump’s ‘Law and Order’ rhetoric and the brutal crackdown on his government against immigrants, racial justice demonstrators and low-ranking offenders, the government was doing everything it could to avoid criminal offenses Prosecution of white collar criminals. “

One of the big companies to have appeared on criminal allegations in 2020 was JPMorgan, which signed its fourth leniency program in a decade last year.

Chipotle Mexican Grill admitted violations of food safety laws that sickened more than 1,100 guests between 2015 and 2018 and paid a record $ 25 million food safety fine in order to receive a three-year DPA. Current and former units of Swiss pharmaceutical company Novartis received multiple DPAs to settle allegations of violating federal anti-corruption laws.

Treating malefactors in companies with a blow on the wrist does not always result from orders at height. In a sense, it’s an artifact of the legal deal where business defenders go back and forth between law firms and the Department of Justice, infecting the prosecutor with the defense attorney’s RNA.

Monaco’s appointment in April was a departure from that pattern. Although she had come to the department from the white shoe firm O’Melveny & Myers, she specialized in data security and data protection law.

During the Obama years, Monaco served in the White House as a homeland security and counter-terrorism advisor. And while previously serving in the Justice Department from 2001 to 2007, she served on the agency’s Enron Task Force, overseeing the prosecution of five former Enron executives.

In her October 28 speech to the American Bar Assn’s National Institute on White Collar Crime. Monaco identified several principles that weaken the department’s approach to white-collar crime.

She withdrew the request to bring only winning cases: “The government may lose some of these cases,” she admitted. But “as long as we act in accordance with the principles of the Federal Prosecutor’s Office, the fear of loss shouldn’t put them off … We will urge prosecutors to courageously hold those who commit criminal behavior accountable.”

Monaco dictated that companies seeking credit to work with the government in criminal matters must “identify all individuals involved in the wrongdoing, regardless of their position, status or seniority”.

This reverses previous government agency guidelines that required companies to identify only those they deemed “materially involved in the misconduct” – a rule that equated to an exit clause for directors and other top executives who should end the misconduct also indirectly, monitored. Better for the department to rule on individuals to blame rather than allowing companies to protect their top dogs.

It also broadened the range of previous misconduct that would be considered when assessing whether a company should be treated gently.

Under current practice, only previous misconduct similar to the new charges would be taken into account – only previous bribery allegations in a bribery case or tax breaches in a tax case. Now prosecutors are instructed to consider the full record of criminal, civil, and regulatory actions, including federal, state, and foreign cases.

“The prosecutors must first assume that any previous misconduct is potentially relevant,” said Monaco.

Regarding leniency agreements, Monaco said it was concerned to learn from Justice Department records that “at some point between 10% and 20% of all significant corporate criminal solutions involve companies that have previously settled with the ministry”.

“I want to be very clear,” she said. “We have no tolerance for companies that take advantage of the pre-trial distraction by continuing to commit crimes, especially if they then aggravate their wrongdoing by knowingly hiding it from the government. I can hardly imagine more outrageous behavior from a company that has even joined a DPA or NPA. “

Eventually, Monaco committed to providing the Economic Prosecutor with an “increase” in resources. Among other things, the agency will embed a new squad of FBI agents in the Department of Justice’s criminal fraud division.

In principle, Monaco’s approach in last year’s JPMorgan Chase affair would have led to a different result. The 2015 probation agreement would have been torn apart and the charges resumed. The bank may well have been declared unsuitable for another deferred prosecution deal. Waivers that enabled the bank to maintain its privileged status in the securities markets despite the criminal charges – waivers that could have been revoked by Kara M. Stein, then a member of the Securities and Exchange Commission.

In conclusion, JPMorgan Chase would have faced real ramifications for a crime it pleaded guilty to in 2015 (and paid a $ 550 million fine). The company would have had to defend itself in a new criminal case instead of paying a fee to make it go away. The financial markets might at least have been made a little more honest.

What happens after the new approach? Kelleher, who declared Monaco’s speech to be the “home run”, knows that time will tell.

“Are they really going to be fearless of wealthy, politically affiliated companies like JPMorgan?” He asks. “It’s easy to be tough on minnows. The jury is out until the DOJ takes sensible action against high-ranking companies and their executives. “

https://www.latimes.com/business/story/2021-11-17/lawbreaking-corporations-have-been-let-off-the-hook-can-biden-fix-that