Brandon Garrett on The Rise in Bank Prosecutions

In 2015, federal prosecutors settled a record number of cases with banks, and in the process imposed record criminal penalties, which critics had complained the Department of Justice had failed to do in the past.


That’s according to a recent report in the Yale Law JournalThe Rise in Bank Prosecutions by University of Virginia Law Professor Brandon Garrett.

Garrett reports that corporations paid record sums exceeding $9 billion in penalties to federal prosecutors in 2015, and paid still more to regulators and others.

In the last decade, federal prosecutors have set new records each year in corporate fines, breaking the ones set the previous year, Garrett reports.

But Garrett cautioned against “treating these data as fully answering critics’ concerns.”

“Despite the apparent rise of bank prosecutions, important too big to jail concerns remain,” Garrett writes. “Prosecution deals are inadequate both as punishments and as rehabilitative efforts designed to promote compliance. Upon closer examination, the recent string of bank prosecutions, while noteworthy, fails to address persistent concerns that deterrent fines are not routinely imposed, that compliance terms designed to rehabilitate firms are not used effectively, and that individuals remain largely unprosecuted.”

How can bank prosecutions be used to deter banks better and to rehabilitate them to prevent future crime?

“The move towards seeking guilty pleas from banks is an important step in the right direction,” Garrett says. “In the past, banks could avoid consequences for repeat criminal prosecutions since they lacked a criminal record, having settled prior cases using non-prosecution or deferred prosecution agreements. Now that prosecutors more often insist upon a criminal conviction in the form of a guilty plea in front of a judge, future violations may result in court-supervised compliance and penalties. The compliance terms of these agreements should themselves be taken more seriously, with public accountability in the form of monitors’ reports, and careful auditing of compliance to test its effectiveness. If banks know that independent monitors will be testing compliance and reporting to a court and to the public, the compliance may be far more rigorous. Finally, prosecution of individuals may become more common if the new Department of Justice guidance takes hold and results in more charging of culpable individuals. Whether that occurs remains to be seen.”

“While real changes should be made to strengthen prosecutions of financial institutions, I am also optimistic that the public and political scrutiny of these cases will continue to push prosecutors to respond to the critics,” Garrett said. “If they do not, other regulators, Congress, and the judiciary may step in.”

“As never before, prosecutors have made the targeting of banks centrally important as a tool for safeguarding the public from fraud and money laundering; enforcement actions against banking violations have grown; and post-Dodd-Frank regulation of banks has steadily increased in its reach and complexity. Those regulations, among other changes less related to criminal accountability, incentivize whistleblowers to come forward, with the goal of encouraging individuals within banks to report financial misconduct to regulators and to prosecutors.”

“While the role of criminal law is and should be limited to only the most severe misconduct, with civil enforcement addressing regulatory violations, prosecutors have come to better appreciate the importance of criminal accountability for truly serious financial crimes. The aftermath of the financial crisis brought home how important it is for even the largest and the most powerful banks and bankers to be held accountable, including for crimes. In the future, hopefully the rise of bank prosecutions will result not just in record monetary penalties, but also in lasting reforms that effectively prevent the recurrence of serious financial crimes.”


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