DoJ's 'Too Little Too Late' Memo

In a move that can only mean a presidential election campaign is upon us, the Justice Department said it is finally going to pursue individual white-collar criminals.

As the New York Times reported, the Justice Department “issued new policies on Wednesday that prioritize the prosecution of individual employees — not just their companies — and put pressure on corporations to turn over evidence against their executives.” The policies are contained in a memo written by Deputy Attorney General Sally Q. Yates. They will be discussed in greater detail today at theNew York University Program on Corporate Compliance and Enforcement.

Pardon my cynicism, but after so much failure to prosecute, I remain doubtful that much if anything has changed. The onus is on the Justice Department to show that it’s serious by way of actions, not words in a memo.

After the most target-rich environment for white-collar prosecution ever, the nation’s top prosecutors have suddenly realized that “Hey, crimes! We should do something about that!” By what must be the sheerest of coincidences, almost all statute of limitations on the oodles of white-collar misdeeds committed during the financial crisis have expired.

This is a subject I have visited repeatedly, both recently (see this, this,this, this, and this), and in the immediate aftermath of the crisis (see this, this, this, this, this, this and this).

As I observed several years ago, “The greatest triumph of the banking industry wasn’t ATMs or even depositing a check via the camera of your mobile phone. It was convincing Treasury and Justice Department officials that prosecuting bankers for their crimes would destabilize the global economy.”

It has been my steadfast view that this simple explanation is why no one of any consequence was prosecuted for the many obvious and easily pursued crimes of the era. It hasn’t been much of a mystery, and there haven’t been any plausible explanations offered that withstood even the slightest scrutiny. The evidence of criminality was clear and overwhelming. But instead of prosecutions and trials, we watched as the Justice Department under former Attorney General Eric Holder decided that certain financial institutions were too big to jail, and that prosecuting senior executives would damage the financial system.

Understand what this meant: The nation’s top prosecutor failed to perform his official duties because he was worried about the theoretical economic harm caused by going after top financial managers. The alternative explanation is that he was grossly incompetent.

To be fair, there is a new sheriff in town: Loretta E. Lynch has been attorney general since April, and she seems to be departing from the course steered by her predecessor, now comfortably ensconced at Covington & Burling, which is where he worked before becoming attorney general. That Washington-based law firm represents many white-collar criminals. The revolving door lives, as Holder and five of his deputies, including Lanny Breuer, former Southern District U.S. attorney, ended up there. Breuer’s responsibilities were supposed to include policing Wall Street, where he managed to avoid prosecuting anyone for much of anything. Now, he gets to defend anyone who faces the remote odds of being charged with wrongdoing. A number of observers have critically commented on Breuer’s lack of prosecutions, including former banking regulator William Black and former New York Attorney General Eliot Spitzer. A few years ago I got the chance to ask Breuer a question at an NYU symposium; his answer reveals everything you need to know about why prosecuting financial crimes wasn’t a priority.

I remain skeptical about whether anything is going to happen. The cynic in me expects a few junior brokers to be arrested and a handful of unimportant, politically unconnected bankers to be fined. I would be surprised if the Justice Department announcement of a white-collar crime crackdown is anything other than just business as usual.

While you ponder the new memo, consider a report by the Government Accountability Institute. It will make you extremely skeptical about the new initiative for prosecuting Wall Street. The Justice Department so totally failed in its duties during the crisis that one has to consider it guilty until it demonstrates otherwise.

Here we are seven years after the crisis, and only now is the Justice Department getting serious about prosecuting individuals? It’s almost enough to make one wonder if an election is coming up or something.

Originally published as: Keep Waiting for Wall Street Crime Crackdown