Blood From A Corporation (Update)

Nobody likes the fact that corporate crime ends up with the payment of a big fine and a deferred prosecution agreement.  It’s so unsatisfying, there being no perp walk, no face to hate and ridicule, no physical embodiment of corporate evil to name and shame.

That the problem might have more to do with the poor fit of criminal laws to corporate conduct doesn’t soothe the townspeople holding torches and pitchforks. They want blood, dammit, and don’t they deserve it?

In the government’s latest round of collecting donations from bank customers against their will, $5.6 billion this time which will of necessity be passed through to the townfolk as “new and improved” banking products and hidden fees to better serve you, the government proves that it’s not afraid of going after big banks.

Lately, the government’s lawyers have gotten a little braver. Attorney General Loretta Lynch announced Wednesday that four of the world’s largest banks had pleaded guilty to criminal charges that their traders had conspired to fix the massive and poorly regulated foreign exchange market. Citigroup, JPMorgan Chase, Barclays, and the Royal Bank of Scotland all admitted to being felons. Meanwhile, Switzerland’s UBS, pleaded guilty to manipulating the benchmark Libor interbank lending rate. The five banks are ponying up $5.6 billion in fines.

But that’s basically the extent of the punishment.

No blood? Where’s the blood? We must have blood!  It’s kinda hard, impossible really, to lock JPMorgan Chase in a cell. It’s not an actual physical entity, but a legal construct. Fictitious entities can ooze through the bars, you see. And even if they don’t, they don’t really give a damn, because they’re fictitious entities.  Not even close to satisfying.

Promisingly, Bloomberg reports that the Justice Department is still considering bringing charges against some of the individuals involved in the foreign exchange scheme. Even if the targets of its investigation turn out to just be relatively low-level traders, that would still demonstrate some determination to treat blatantly criminal activity as blatantly criminal activity; we are talking about a group of conspirators that had the gall to call itself “the cartel,” after all.

Could this be a solution, pick out a few “relatively low-level traders,” preferably the ones who aren’t particularly good producers, and toss them in the hoosegow as representatives of the giant evil bank?

This is the ridiculously pointless, yet dangerous, approach urged by Jordan Weissmann, Slate‘s senior business and economics correspondent.  Give us blood, and any blood will do, because it’s not like it matters whether the warm bodies thrown under the bus to appease the bloodlust of the public matter.

Who cares whether the low-level guys did the dirty, or did what they were told to do by their seniors, or did anything?  When corporate crime fails to satisfy, give us some punks in bespoke suits standing in the well.  Everybody hates punks with working buttonholes in their suit sleeves.

Still, so long as banks are allowed to pay for their crimes by simply writing a check, it’s hard to think of these as anything other than ersatz convictions.

So here’s the big question. Is the Justice Department still too scared to pursue actual criminal penalties against a bank? Or, now that prosecutors have taken the step of forcing an actual plea from an American institution, will they feel empowered to seek somewhat harsher punishment the next time around? How brave are they, really?

Goading the government into prosecuting low-level traders, just to have someone to hate enough to satisfy the bloodlust, is foolish.  Corporate “crime” doesn’t happen like a street mugging, with one drug-addled guy responsible for deciding to knock over an old lady for her cameo brooch so he can get his next fix.  To suggest this is not merely foolish, but betrays a fundamental misunderstanding of the nature of financial crime.

When the government can identify an individual, or group, that actively engaged in crime, it’s hardly reluctant to go after them.  And indeed, despite the connected deferred prosecution agreements and mega fines paid by corporations, they regularly prosecute corporate executives who are responsible for the decision to commit crimes, or knowingly effectuate those decisions.

But that doesn’t mean that there is always a bad corporate dude to be found. Corporate decision making is diffuse, as is the execution of those decisions, and people all along the spectrum, from top level executive to low-level flunky in a nice suit, have no clue that they’re engaging in a crime.

Indeed, they often have no clue why they’ve been given marching orders, or that there is anything remotely improper about them. Pushing paper from one side of a desk to another is not inherently wrong, or morally blameworthy, no matter how much you hate those guys whose bonuses are 100,000 times greater than the pay of, oh, a Slate senior business and economics correspondent.

Are the townsfolk right to be angry that there is no blood to be gotten from corporations that engage in crime?  Sure. Why not?  But that doesn’t mean that they find any warm body around to throw into prison to make us feel better about it.  And it’s particularly galling for Slate to goad the government into sacrificing “low-level” people just so we can get the blood that would make people feel so much better about having to shoulder the $5.6 billion the banks will be shifting back to us.

Update:  The New York Times has published an editorial taking the view that warm bodies need to pay:

An argument has been made that the S.E.C. was right not to revoke the banks’ capital-market privileges because doing so might disrupt the economy. That is debatable. What is not debatable is that bringing criminal charges against individuals and even sending some of them to jail would not disrupt the economy. To the contrary, holding individuals accountable is all the more important in instances of wrongdoing by banks that, for whatever reason, have been exempted from the full legal consequences of their criminal behavior.

It’s true that sending “some of them” to jail (actually, prison, but that’s a detail that often eludes the media) would not disrupt the economy. But does not doing so send the opposite message, that individuals are “exempted from the full legal consequences of their criminal behavior”? As a generic assertion, yes, but who, and for what specific criminal behavior?

Broad strokes are easy, and the vague idea that someone must pay is a palliative message. But we don’t prosecute individuals for generic corporate offenses. If you’ve got someone who you think needs prosecuting, New York Times, say so, and say why, and say what the evidence of their criminal behavior might be. Otherwise, you’re just riling up the townsfolk for nothing.

And nice to know you guys are reading SJ, and feel the need to offer a contrary view.

25 thoughts on “Blood From A Corporation (Update)

  1. bmaz

    Slate is just being Slate: Lame is what they do best. I’d much rather see the government go after one big symbolic fish – Jamie Dimon would be my nominee – and prosecute him with every lever possible like they would any other terrorist (and, really, banksters have done way more damage that more traditional terrorists). Now THAT would be an example.

    1. SHG Post author

      If they took Jamie Dimon down, JPMorgan would have a new Jamie in his place within minutes. They have an inexhaustible supply.

      As for Slate being Slate, it just makes me sad that a few gazillion more readers learn about the law there than here.

      1. John Barleycorn

        Is a gazillion bigger than 5.6 billion?

        P.S. Don’t be sad one day the NYT and Slate will be merging. Just think what that alone will do to ease the arthritis in your click finger esteemed one.

      2. Jake DiMare

        ‘As for Slate being Slate, it just makes me sad that a few gazillion more readers learn about the law there than here.’ -maybe you should try giving more tummy rubs.

  2. delurking

    Wow, there are places I can get a suit with working buttonholes at the cuffs? I want one.

    Anyway, I am amused at how Slate-guy thinks that “writing a check” is only an ersatz conviction. How many billions of dollars in fines do law enforcement agencies collect? I guess they should have thrown the perps in jail instead.

  3. Jake DiMare

    But wait, I thought corporations were people, who have the right of free speech? Or was it that corporations are made up of people?

    In either case, I agree with BMaz’s assessment of Slate but disagree there are no individuals who can and should be in shackles when they steal just because they stole while working a desk job.


    ‘and people all along the spectrum, from top level executive to low-level flunky in a nice suit, have no clue that they’re engaging in a crime.’

    Ignorance of the law isn’t a defense for me, why should it be a defense for low-level flunkies?

  4. KP

    Perhaps their “punishment ” is the only possible one for the “crime”. After all, is rigging a market a real crime? To me its like insider trading, just part of business and those getting involved should understand that there will be people at the top and people at the bottom.

    If someone knocks you over for your cameo brooch you have obviously been robbed. However is you agree to 79.8c for an FX instead of 80.3c, have you actually been robbed just because the guy you were dealing with managed to skim an extra half cent??

    To me it makes as much sense in a criminal way as the ‘three ladies in jail cartoon’- “I’m in for dumping, having my prices cheaper than anyone else” “I’m in for gouging, having my prices more expensice than anyone else” “I’m in for collusion, having my prices the same as everyone else”

    You can’t have the same punishments when the crimes of the corporates are so different. I expect the final sanction would be to break the company up and deregister it.

    1. Franklin Michaels, Jr.

      By way of reference, Jed Rakoff (USDJ, SDNY) – once upon a time chief of the business and securities fraud unit in the U.S. Attorney’s Office for the SDNY – published something of a nuts and bolts treatment addressing the issue you raise, styled “The Financial Crisis: Why Have No High-Level Executives Been Prosecuted?” in the New York Review of Books (01.09.14). It would be presumptuous to restate the three major points he makes, which are only a search request away, As is the comment and his rejoinder of 04.03.14.

      But on the issue of “Blood” there’s another approach altogether – that might be feasible – at least to at least some degree – just by Executive Order and that’s banishment or a set period of time from government contracting. Something that’s done (if too rarely) in response to fraud in defense contracting. Hell, the Fed could adopt a regulating to that effect, barring any national bank and now felon from the discount window for so many months. That would hurt. Treasury and the rest of the government have to be in a position to do the same thing, with or without the issuance of formal reg.s, – e.g., in the manner in which DoD and State (including USAID) do business abroad.

      But the administration’s failure to even float the possibility of creative options as adjunct criminal sanctions of this kind can’t be laid at the feet of institutional issues in US Attorney offices around the country . . .

      1. SHG Post author

        The phenomenon of one person going slightly off topic invariably means the next person will take the ball and run with it, going completely off topic. You do that here. Please don’t. This is not a post about potential punishments for corporate crime, and your comment bears nothing whatsoever on the topic of the post.

  5. Konrad

    Imagine a New Yorker telling the White House that they are not located at 1600 Pennsylvania Avenue, since avenues can only run north and south, and therefore the correct term is Pennsylvania Street.

    My point is that the NYT uses the word jail correctly. Just like prison, it means a place where prisoners are held. Both words and the current meanings were a part of English language well before this country existed. Their meanings haven’t changed in everyday English, only in the language of some law-talking guys.

  6. Mike

    In a statement, Public Citizen President Rob Weissman criticized the settlement as insufficient and urged more aggressive regulatory action: “[N]otwithstanding today’s announcement and others like it, these banks are not deterred from violating the law – indeed, they are literally not subject to the same standards as other banks and other companies. A democratic society cannot tolerate having banks above the law. There’s a solution to this problem: break them up.”

      1. Mike

        I’m not sure what you mean. That it would be a communist takeover of american capitalism to have meaningful punishments for breaking the law?

          1. Mike

            Call me a simpleton. I’m still not getting it. You decry the call for blood punishment of individual low-level actors due to the diffuse decision-making nature of large corporations. Why not acknowledge that an alternative would be to break up these too-big-to-fail banks? Instead of branding a few very publicly, or merely adding passed on fees to consumers, take the whole mess apart and let the market rebuild with the knowledge that there are real punishments available.

            1. SHG Post author

              A business becomes successful, grows large, then huge, prevails in the marketplace, so the solution is for govt to break up the business? In a capitalist society, the govt doesn’t break up businesses because they’ve been too successful and grown too large for the govt to tame.

            2. David M.

              To give you a rough idea of the economic costs involved, consider France, the world’s fifth-largest economy and a country where the state routinely interferes in business dealings of all kinds, with a special fondness for sabotaging deals between large corporations.

              Going off IMF data, the difference between American and French per-capita GDP is currently a little higher than that between French and Lithuanian. Unemployment is twice as high. And America grew seven and a half times faster last year.

            3. SHG Post author

              No, a punishment is based on law-breaking. Your punishment is predicated upon the market success. If they weren’t so big, they wouldn’t be broken up. One punishment for successful businesses, another for less successful businesses, based upon their size/success is predicated on market success.

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