Simon Johnson's column today focuses (as usual) on too-big-to-fail banks and asks who decided to make them immune from prosecution in the first place. He mentions a speech by Lanny Breuer, the outgoing head of the U.S. Justice Department's criminal division, who told the New York City Bar Association last September that decisions about whether to indict large corporations are the sorts of considerations that "literally keep me up night."
Breuer's speech received little attention last year. But it has been getting a lot lately -- ever since the PBS program "Frontline" brought it up during a documentary last month called "The Untouchables," about the lack of significant criminal prosecutions related to the financial crisis. Anyway, I've seen the speech cited so many times recently, I figured it's worthwhile to publish the relevant section so readers can see what the fuss is about:
"To be clear, the decision of whether to indict a corporation, defer prosecution, or decline altogether is not one that I, or anyone in the criminal division, take lightly. We are frequently on the receiving end of presentations from defense counsel, CEOs, and economists who argue that the collateral consequences of an indictment would be devastating for their client. In my conference room, over the years, I have heard sober predictions that a company or bank might fail if we indict, that innocent employees could lose their jobs, that entire industries may be affected, and even that global markets will feel the effects. Sometimes – though, let me stress, not always – these presentations are compelling. In reaching every charging decision, we must take into account the effect of an indictment on innocent employees and shareholders, just as we must take into account the nature of the crimes committed and the pervasiveness of the misconduct. I personally feel that it’s my duty to consider whether individual employees with no responsibility for, or knowledge of, misconduct committed by others in the same company are going to lose their livelihood if we indict the corporation. In large multi-national companies, the jobs of tens of thousands of employees can be at stake. And, in some cases, the health of an industry or the markets are a real factor. Those are the kinds of considerations in white collar crime cases that literally keep me up at night, and which must play a role in responsible enforcement."
As far as I can tell, this is the same general policy that the Justice Department has espoused for decades. The difference nowadays is that the government always seems to reach the same answer when it comes to big banks and professional-services firms: Don't indict. (Note that Breuer was referring to large companies in lots of different industries, not just financial services.)
The Justice Department's leaders went through the same considerations more than a decade ago before deciding to indict Arthur Andersen LLP over document destruction after its failed audits at Enron Corp. A jury in Houston convicted the accounting firm in 2002 on a single felony obstruction-of-justice count -- and then the Supreme Court overturned the verdict in 2005.
The Justice Department has been unwilling to criminally prosecute large financial institutions or accounting firms ever since; the act of indicting Andersen, alone, was enough to put it out of business. It's also worth noting that one of the attorneys who represented Andersen at its criminal trial was Denis McInerney, who is now chief of the criminal division's fraud section.
We can only imagine how different the world might be today if the government's conviction of Andersen had stuck. Perhaps big-time bankers and accountants might be more reluctant to break the law.
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