Too Big To Prosecute?

Add another advantage to being a big business: apparently you’re too big to prosecute. I came across an article in the New York Time’s DealBook concerning the deal being made between JP Morgan Chase and the government. The bank had, it seems, turned a rather blind eye to the evil machinations of Bernie Madoff and his epic fraud.

So far so good. Banks are supposed to be on the look out for such schemes and to blow the whistle rather than fatten up on fees derived from them.

But here’s the rub:

According to the article prosecutors came perilously close to filing a criminal complaint, but demurred because of the potential unintended consequence of having the entire bank unravel and collapse. This has been a fear of the government’s since its pursuit of Arthur Andersen over its negligence with respect to  Enron drove it out of business. Andersen’s demise cost us 28,000 jobs, although I doubt any were lost long term. here’s the relevant paragraph from the article:

“The government has been reluctant to bring criminal charges against large corporations, fearing that such an action could imperil a company and throw innocent employees out of work. Those fears trace to the indictment of Enron’s accounting firm, Arthur Andersen, which went out of businesses after its 2002 conviction, taking 28,000 jobs with it. Ever since, prosecutors have increasingly relied on deferred-prosecution agreements, which rebuke companies without threatening their health. …”

This strikes me as yet another example of the way in which big business benefits from absurd and unjustified deference from our regulators. A smaller business or an individual would, most likely, not have been treated so politely. After all if a corporation is an individual for the precise purpose of presenting the public with a prosecutable “person” – which was the old premiss for treating a business as a person before the Supreme Court mistook money for free speech in the Citizen’s United case – then the knock on effect of lost jobs ought not play a factor. There is muddled logic afoot.

If a company is a single person for legal purposes, it cannot also be several thousand people for economic purposes. If we are so concerned about all those jobs, then we need to open up the company and allow a more direct prosecution of individuals who commit crimes on its behalf. We prosecute individuals within corporations for their personal crimes all the time, so we have no problem seeing a difference between crimes committed by the business and crimes committed by people who happen to work for the business. The Madoff case seems to be one where the prosecutors think the business itself committed crimes, or at least transgressed the law, and yet refuse to follow up fully on that thought for fear of consequences that are outside of the proscribed punishments.

So JP Morgan Chase gets away with it, not because the prosecution thought it was innocent, but because it is so darned large and might cause a knock-on panic on Wall Street.

Now I get that the prosecutorial hesitancy might be based on the higher standards of proof required in a criminal case, but the article clearly implies it was more than this. I hope not. I would hate to think our regulators were so afraid of big banks that the quiver and quake rather than enforce the law.

That can’t be hastening. Can it?

Oh, and about the fine being levied: it sounds very large, but as we have all been painfully made aware, so is JP Morgan Chase. It will hardly notice the fine, which right now is said to be $2 billion. It’s about time that fines against big businesses were sufficient to grab the attention of management and shareholders. Enough, that is, to get them to weigh the risks of engaging in dodgy business before the fact. And enough to force shareholders to ditch managers who ignored the law after the fact.

I doubt Jamie Dimon will be fired because he runs a criminal organization. Look for yet another internal reorganization; yet another renewal of focus on “trying harder not to do wrong”; yet another PR campaign; yet another employee awareness campaign; and yet more meaningless handwringing in the executive suite. In other words yet more nothing.

Print Friendly, PDF & Email