Stupid or Evil?

Stupid implies they were motivated by noble instincts and were merely misguided, ignorant, or incompetent.

Evil says they knew exactly what they were doing.

Unless you think everyone’s an idiot except you (which I do with ample justification but is not really relevant) I think you’ve got to come out somewhere on the evil side.  Does the rot go to the top?

Have you been asleep since Lehman?

Now the DOJ Admits They Got it Wrong

by William Black, New Economic Perspectives

Posted on September 11, 2015

It is now seven years after Lehman’s senior officers’ frauds destroyed it and triggered the financial crisis. The Bush and Obama administrations have not convicted a single senior bank officer for leading the fraud epidemics that triggered the crisis. The Department’s announced restoration of the rule of law for elite white-collar criminals, even if it becomes real, will come too late to prosecute the senior bankers for leading the fraud epidemics. The Justice Department has, effectively, let the statute of limitations run and allowed the most destructive white-collar criminal bankers in history to become wealthy through fraud with absolute impunity. This will go down as the Justice Department’s greatest strategic failure against elite white-collar crime.

The Obama administration and the Department have failed to take the most basic steps essential to prosecute elite bankers. They have not restored the “criminal referral coordinators” at the banking regulatory agencies and they have virtually ignored the whistleblowers who gave them cases against the top bankers on a platinum platter. The Department has not even trained its attorneys and the FBI to understand, detect, investigate, and prosecute the “accounting control frauds” that caused the financial crisis. The restoration of the rule of law that the new policy promises will not happen in more than a token number of cases against senior bankers until these basic steps are taken.

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As a corporate executive once told a former Assistant Attorney General of ours: “[A]s long as you are only talking about money, the company can at the end of the day take care of me . . . but once you begin talking about taking away my liberty, there is nothing that the company can do for me.”(1) Executives often offer to pay higher fines to get a break on their jail time, but they never offer to spend more time in prison in order to get a discount on their fine.

We know that prison sentences are a deterrent to executives who would otherwise extend their cartel activity to the United States. In many cases, the Division has discovered cartelists who were colluding on products sold in other parts of the world and who sold product in the United States, but who did not extend their cartel activity to U.S. sales. In some of these cases, although the U.S. market was the cartelists’ largest market and potentially the most profitable, the collusion stopped at the border because of the risk of going to prison in the United States.”

As prosecutors, (real) financial regulators, and criminologists, we have known for decades that the only effective means to deter elite white-collar crimes is to imprison the elite officers that grew wealthy by leading those crimes (which include the largest “hard core cartels” in history – by three orders of magnitude). In the words of a Deutsche Bank senior officer, the bank’s participation in the Libor cartel produced a “mountain of money” for the bank (and the officers). Holder’s bank fines were useless – and the Department’s real prosecutors told him why they were useless from the beginning. No one, of course, thinks Holder went rogue in refusing to prosecute fraudulent bank officers. President Obama would have requested his resignation six years ago if he were upset at Holder’s grant of de facto immunity to our most destructive elite white-collar criminals.

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The Department’s top criminal prosecutor, Lanny Breuer, publicly stated his paramount concern about the fraud epidemics that devastated our nation – he was “losing sleep at night over worrying about what a lawsuit might result in at a large financial institution.” That’s right – he was petrified of even bringing a civil “lawsuit” – much less a criminal prosecution – against “too big to prosecute” banks and banksters. I lose sleep over what fraud epidemics the banksters will lead against our Nation. The banksters have learned to optimize “accounting control fraud” schemes and learned that they can grow immensely wealthy by leading those fraud epidemics with complete impunity. None of them has a criminal record and even those that lost their jobs are overwhelmingly back in financial leadership positions. In the aftermath of the savings and loan debacle, because of the prosecutions and criminal records of the elites that led those frauds, no senior S&L fraudster who was prosecuted was able to become a leader of the fraud epidemics that caused our most recent financial crisis.

We have known for decades that repealing the rule of law for elite white-collar criminals and relying on corporate fines always produces abject failure and massive corporate fraud. We have known for millennia that allowing elites to commit crimes with impunity leads to endemic fraud and corruption. If the Department wants to restore the rule of law I am happy to help it do so. We have known for over 30 years the steps we need to take to succeed against elite white-collar criminals through vigorous regulators and prosecutors. We must not simply prosecute the current banksters, but also prevent and limit future fraud epidemics through regulatory and supervisory changes.

The Justice Department’s New Policy Is a Brutal Admission of Eric Holder’s Failures

By David Dayen, The Fiscal Times

September 11, 2015

This week, the Justice Department felt the need to write a memo to staff instructing them to indict individuals when they commit crimes, seemingly something implied by their job titles. It doesn’t say as much about the current Justice Department regime under Loretta Lynch as it does about the former one under Eric Holder.

No major Wall Street executive went to jail for the illegal actions that precipitated the financial crisis, despite a mountain of documentary evidence of fraud. Corporations and their employees got away with what amounted to slaps on the wrist. And Holder, after presiding over this, joined the head of his Justice Department criminal division and several top deputies at Covington & Burling, a white-collar defense firm that represents most major banks.

You can draw a direct line from this failure back to the “Holder memo,” written when he served as a deputy in the Clinton Justice Department. That memo created the “collateral consequences” policy, arguing that prosecutors who seek criminal cases against large companies should take into account innocent victims who may get hurt. It laid out a host of alternative remedies, such as fines and deferred prosecution agreements.

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The Justice Department would not have attempted to make this change without full recognition of the loss of public trust its actions over the past several years have engendered. Relentless criticism of the lack of white-collar prosecutions had an impact, and those who participated in that conversation should be proud.

But at this point, guidelines won’t do the trick, only actions will – a genuine effort to make the concept of justice more than a punch line. This is the beginning of a real overhaul in mindset at the Department of Justice. Hopefully, the resources and training needed to undertake wide-ranging investigations will accompany the guidelines. Hopefully, U.S. Attorneys and FBI agents will be allowed to do their jobs. Hopefully, settlements with corporations no longer represent a dead end of accountability. Hopefully, the Justice Department will live up to its name.

The End of the Deferred Prosecution Agreement?

by David Dayen, Naked Capitalism

Posted on September 8, 2015

DPAs usually arise out of the company disclosing misconduct and convening an internal investigation with some Assistant AG, promising full cooperation. The company gets credit for remedial conduct prior to the settlement, essentially setting their own punishment. And typically, DPAs are not paired with prosecutions for individuals committing the crimes.

So let’s look at the DPA that could bring this cozy situation crashing down. DoJ headlined back in June 2014 that Fokker Services BV would forfeit $10.5 million for selling aircraft parts and services to customers in Iran, Burma and Sudan. There was a parallel civil settlement with the Treasury Department’s Office of Foreign Assets Control (OFAC) to pay an additional $10.5 million. If you go down the press release, you find that Fokker received $21 million in gross revenue for these 1,153 illegal transactions, so the penalty was simply to give back what they received. Now they’re out a bunch of aircraft parts, one assumes, and I don’t really know the markup here. But that doesn’t seem too taxing.

In fact, in the DPA itself, we learn that “at least $21 million” was involved in the transactions. So it’s not possible to know what, if any, financial penalty was imposed. And FWIW, the civil penalty for the crime FSBV committed could have been as high as $51 million, per corporate law firm Akin Gump.

FSBV had to “accept responsibility” for its actions and really do little else. They agreed to cooperate with any matters relating to this investigation, making documents and individual employees available. For what purpose I have no idea, since nobody at FSBV has been indicted for this, 4 years after the company disclosed everything. FSBV must also continue to apply what it has already implemented voluntarily, namely compliance programs to prevent it from continuing to break the law. And… that’s about it. Plus, “in consideration of FSBV’s remedial actions to date,” this “punishment” all goes away within 18 months.

So I can see why Judge Richard Leon rejected this deal back in February, calling it “grossly disproportionate” and that “it would undermine the public’s confidence in the administration of justice and promote disrespect for the law… to see a defendant prosecuted so anemically for engaging in such egregious conduct.”

Just as a sidebar, I have a problem with a Dutch company being prosecuted by the United States for trading with other countries. There are a series of “trading with the enemy” type of laws that put the U.S. in the position of world trading policeman, sometimes for inscrutable reasons. But as long as that law is on the books, sentencing an offender to give back (some? all?) of their profits and promise not to do it again does seem a bit thin.

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DoJ and FSBV jointly appealed Judge Leon’s order, saying he exceeded his authority. When the law enforcement agency and the offending entity end up on the same side of a lawsuit, well, it certainly doesn’t look great.

So this week we’ll have arguments in the 1st Circuit Court of Appeals D.C. Circuit Court of Appeals (h/t Abigail Field). And I don’t really know what DoJ will have to say for themselves. These are the kind of craptastic agreements they’ve been making with corporate offenders for the entire Holder era (Holder, last seen just hanging out at his awesome new office at Covington & Burling, was AG when this DPA was made). Presumably they’ll avoid the specifics and just claim that judges can’t have the temerity to reject contractual agreements made by two sides, and how this would damage the separation of powers, prosecutorial discretion, &c.

But judges have held up DPAs in the past, though they were eventually approved. And considering that DoJ can also file a non-prosecution agreement, which don’t require court approval, there’s obviously some role for judges to play here. If you want to get judicial approval, you can’t expect that approval to come automatically. And if the goal is to extract the proper consequences out of a corporate offender, a judge resisting settlements that are overly lenient can only enhance DoJ’s efforts.

Of course, that isn’t what DoJ is after. They would rather settle these matters quietly, write a press release, and then get a judge to bless it to get buy-in from another branch of government, so if anyone questions the slap on the wrist they can say “well a judge approved it.”

Legally this is a jump ball; DoJ could easily wriggle off the hook here. But if the 1st Circuit D.C. Circuit blows up this little charade, they will have to make their terrible deals without a patina of outside approval. Or maybe, horror of horrors, they’ll have to do their job properly.