Written by Sinclair Noe   

The Justice Department is renewing its efforts to charge individuals in corporate investigations. Justice Department officials issued a memo Wednesday to prosecutors outlining best practices and recommending that they only consider a company to have cooperated in an investigation if that company turns over information about the actions of individuals at the firm, "regardless of their position, status or seniority." And this is not first time the DOJ has tried this scheme. In 2014, then-Attorney General Eric Holder announced that “no company was too big to jail”, and of course since that declaration, no company has been jailed.

The new memo, released by Deputy Attorney General Sally Yates, claims that this new direction “deters future illegal activity, it incentivizes change in future corporate behavior”. This was a point emphasized by Matthew Schwartz, a former prosecutor at the United States attorney’s office in Manhattan who told the New York Times: “The main reason you bring these cases is to send messages to the business community”. However, they are both wrong; the main reason to seek criminal charges and incarcerate criminals is to punish them, next on the list is deterrence, followed by rehabilitation. That has been the Department of Justice’s longstanding guideline. In fact, in a speech by then-AG Holder in August of 2013, he said “we need to ensure that incarceration is used to punish, deter, and rehabilitate”. It may seem a subtle distinction, but the difference in priorities is huge; especially because it confirms that we have a two-tiered system of justice: one for bankers, and the other for everyone else.

Of course punishment has never been the DOJ’s guideline when dealing with bankers. For many years AG Holder subscribed to the idea of going easy on the banks; it came to be known as the Holder Doctrine, which stems from his now-famous June 1999 memorandum — when he was deputy attorney general — that included the thought that big financial settlements may be preferable to criminal convictions because a criminal conviction often carries severe unintended consequences, like loss of jobs and the inability to continue as a going concern.

The new memo seems to say that the plan is to talk tough in the hope of deterring illegal activity. The memo says “To be eligible for any cooperation credit, corporations must provide to the Department all relevant facts about the individuals involved in corporate misconduct.” In other words, identify your rogue traders and low-level scapegoats before you try to cut a deal. In fact, the memo goes to great lengths to explain how it is so very, very difficult to bring a case against individuals and especially against executives. Also, the memo seems to forget the idea from Holder that “no company is too big to jail”. If you want a deterrent effect, how about the idea that a corporate charter can be revoked; imagine if JPMorgan or Goldman Sachs faced the prospect of losing their charter for their crimes; that might prompt directors and officers and shareholders to think twice. Of course that will never happen; the banks really are too big to fail, and nothing has been done in the last 7 years to change that fact.

Since 2009, 49 financial institutions have paid various government entities and private plaintiffs nearly $190 billion in fines and settlements, according to an analysis by the investment bank Keefe, Bruyette & Woods. That may seem like a big number, but the money has come from shareholders, paid out as corporate expenses, and in some cases, tax deductible. For the banks, justice is just a check that somebody else has to write; not much deterrence there.

Wall Street has assumed control over the government, its agencies, and our legal system. The DOJ says it will increase its efforts in deterring Wall Street crime. Forgive me if I seem skeptical.