New York Times Behind the Gentler Approach to Banks by U.S. By GRETCHEN MORGENSON and LOUISE STORY July 7, 2011
As the financial storm brewed in the summer of 2008 and institutions feared for their survival, a bit of good news bubbled through large banks and the law firms that defend them.
Federal prosecutors officially adopted new guidelines about charging corporations with crimes a softer approach that, longtime white-collar lawyers and former federal prosecutors say, helps explain the dearth of criminal cases despite a raft of inquiries into the financial crisis.
Though little noticed outside legal circles, the guidelines were welcomed by firms representing banks. The Justice Departments directive, involving a process known as deferred prosecutions, signaled an important step away from the more aggressive prosecutorial practices seen in some cases under their predecessors, Sullivan & Cromwell, a prominent Wall Street law firm, told clients in a memo that September.
The guidelines left open a possibility other than guilty or not guilty, giving leniency often if companies investigated and reported their own wrongdoing. In return, the government could enter into agreements to delay or cancel the prosecution if the companies promised to change their behavior.
But this approach, critics maintain, runs the risk of letting companies off too easily.
If you do not punish crimes, theres really no reason they wont happen again, said Mary Ramirez, a professor at Washburn University School of Law and a former assistant United States attorney. I worry and so do a lot of economists that we have created no disincentives for committing fraud or white-collar crime, in particular in the financial space."
While deferred prosecution agreements were used before the financial crisis, the Justice Department made them an official alternative in 2008, according to the Sullivan & Cromwell note.
It is among a number of signs, white-collar crime experts say, that the government seems to be taking a gentler approach.
The Securities and Exchange Commission also added deferred prosecution as a tool last year and has embraced another alternative to litigation reports that chronicle wrongdoing at institutions like Moodys Investors Service, often without punishing anyone. The financial crisis cases brought by the S.E.C. like a recent settlement with JPMorgan Chase for selling a mortgage security that soured have rarely named executives as defendants..."
