The U.S. Justice Department has gone after big banks for corporate wrongdoing and secured billions in fines, but prosecutors largely ignored corporate executives. Former Attorney General Eric Holder faced criticism for what some saw as leniency towards the executives. Now, with the federal department under Attorney General Loretta Lynch, the Justice Department will set their sights on the individuals responsible.
In a memo authored by Deputy Attorney General Sally Yates, the Justice Department has come out with new policies that focus prosecution on individual employees and executives, rather than the companies alone. If the corporations want to take advantage of credit for cooperating with prosecutors, they will have to point fingers to individuals within the organization.
“We cannot allow the flesh-and-blood people responsible for misconduct to walk away, while leaving only the company's employees and shareholders to pay the price,” said Yates through remarks at New York University School of Law. “We're taking six specific steps to hold individual corporate wrongdoers accountable.”
The new memo puts the focus of criminal investigations on the individual employees from the outset. It also limits the credit that corporations get for cooperation in settlement negotiations to situations where the companies identify individual employees, and provide evidence against them. This is intended to apply to all employees, “regardless of their position, status or seniority.”
Yates indicated that investigators in the past prioritized targeting the corporations themselves because of the possibility of financial recovery. However, targeting individuals is important because it “deters future illegal activity, it incentivizes changes in corporate behavior, it ensures that the proper parties are held responsible for their actions, and it promotes the public's confidence in our justice system.”
The announcement and memo come after years of criticism for the way the Justice Department handled the housing crisis and other financial scandals, where few corporate executives saw any real punishment. In an interview with the New York Times, Brandon L. Garrett, a law professor at the University of Virginia said the memo is good, “but it states what should have been the policy for years.”
Despite the criticism, some Justice Department officials cite corporate structuring and extra high standards for the reason they have not been able to bring charges against top executives. DAG Yates acknowledged that in the memo, identifying, “substantial challenges unique to pursuing individuals for corporate misdeeds.”
Others doubt that this new policy will have any real world impact. In an editorial from BloombergView, Barry Ritholtz is doubtful that much changed after a history of the failure to prosecute, and will wait for the Justice Department to show they are serious through actions rather than a memo. “Ii would be surprised if the Justice Department announcement of a white-collar crime crackdown is anything other than just business as usual.”
The memo was issued to all U.S. attorneys' offices, and the new policy is to be applied to all future investigations of corporate wrongdoing. While no Wall Street executives went to jail for the 2008 financial disaster, this may change in the future if the Justice Department is serious about changing federal policy towards investigating white collar fraud.