Lanny Breuer, the head of the Criminal Division at the Department of Justice, spoke to the New York City Bar Association last Thursday (H/T Emptywheel) to explain why Deferred Prosecution Agreements are good for America. He’s talking about those settlements where the criminals agree not to do it again, and pay some of the stolen money back. Of course, those are only available to corporations, not to human persons, for reasons that I can’t quite remember. Perhaps we can learn from Breuer’s discussion.
He starts his efforts with a surefire joke: “… we have dramatically ramped up our white collar criminal enforcement efforts…” I’m sure that brought down the house. He explains that when he says he ramped up the efforts, he means he hired a white collar defense lawyer from Davis Polk to head up the fraud section. Get it? Of course you remember that Breuer is the co-head of the feckless Financial Fraud Enforcement Task Force, which makes it even funnier.
Breuer explains that he is very proud of those DPAs, because they require an admission of wrong-doing, cooperation with the investigation, payment of monetary penalties, and changes in corporate behavior through a compliance program. Now regular humans are supposed to have a compliance program, meaning that they don’t commit crimes, and when they do commit crimes, they get punished. Corporations have a get out of jail cheap card: they just promise to do better. Anyway, he follows up with another laugh line:
Our prosecutors are sophisticated. They know the difference between a real compliance program and a make-believe one. They know the difference between actual cooperation with a government investigation and make-believe cooperation. And they know the difference between a rogue employee and a rotten corporation.
Just look at the too big to fail banks. Every one of them is a serial offender, money laundering, manipulating LIBOR, illegal foreclosures, fraudulent sales of RMBSs, the list goes on and on. But a jury of their sophisticated peers in Breuer’s unit finds them Not Guilty, just greedy or immoral, so no prosecutions for you, America. I’d love to hear how this sophisticated jury decided they aren’t rotten to the core.
The idea that the solution to corporate crime is to create a compliance program is hilarious. A number of years ago, a regional bank in the south let a Ponzi Scheme run through its accounts. Apparently the bank did not create adequate programs to comply with the Anti-Money Laundering Act and the Bank Secrecy Act, and as a result failed to file suspicious activity reports (SARs) in a number of cases, including the Ponzi Scheme and embezzlement by the CFO of one of its corporate customers. So, it signed a Deferred Prosecution Agreement agreeing to implement adequate programs. All those past failures to report didn’t count, and the bank got off paying $40 million, and agreeing to comply with the law as it should have done.
There is no way to know if the bank is actually complying. SARs are a big secret, so no one would ever know, now would they? And the frauds themselves, the ones the bank didn’t report and any future frauds they detect? The bank mostly has no duty to do anything about them. In exactly the same way, no one will know if some giant bank is laundering money, or cheating people in interest rate swap transactions or illegal foreclosures even in the face of those compliance programs.
Breuer is really worried about the impact of criminal prosecution on innocent bystanders, like the shareholders who benefited from the fraud, and employees not involved in the fraud. He seems utterly unaware that the same issues apply when he and his band of candy-ass prosecutors go after pot dispensaries and dope smokers. Lots of innocent people get hurt, and even the guilty are punished far beyond the bounds of reason. The crucial difference is money: holding corporations liable for their crimes could cost a lot. Breuer admits that possible damage to the money keeps him up at night. Apparently the rule of law is more like Ambien; he has no trouble sleeping because of worries about that.
Breuer ends by telling us that the individuals involved in corporate crimes must answer for their behavior. That’s the biggest joke of all, a real thigh-slapper. I’m waiting to see the prosecutions for money-laundering at all these banks, the prosecutions for the fraudulent sales of RMBSs, the prosecutions for manipulating LIBOR and, well, anything.
When Breuer goes job-hunting, this will be his audition piece.