In what has been touted as her first major policy announcement since taking office in April, U.S. Attorney General Loretta E. Lynch issued a memo last week to federal prosecutors across the country. It contained new rules to prioritize federal prosecution of actual people in corporate crimes. It remains to be seen how vigorously that will be enforced, but the memo offers hope that executives who break the law will be treated as severely as other criminals.
Speaking at the Iowa State Fair when running for president in 2011, Mitt Romney famously told some hecklers that “corporations are people.” Corporations, however, cannot be jailed when they misbehave. It would be better to take not his actual words, but what Romney may have meant: Corporations are made up of people. And those people can be held accountable for their actions.
Corporations exist in part to shield their owners from financial liability. Stockholders can lose the value of whatever stock they own if everything goes sour, but they cannot be sued and lose their houses or life savings over something the corporation did. Likewise, executives can lose their jobs if the company does poorly, but not their personal property.
There is no reason that protection from liability should extend to criminal behavior. Yet, as critics complain, that seems to have been the case. Despite the housing bust, the financial crisis in 2008 and various other scandals, President Obama’s Justice Department has prosecuted few of the executives involved. Instead, it has been satisfied to collect record fines as punishment for corporate wrongdoing. But while prosecutors levied billion of dollars in fines against big banks in the wake of the 2008 financial crisis, which was rife with wrongdoing, no top Wall Street executives were jailed.
That could change, and will if the department is serious about the new policies.
Deputy Attorney General Sally Q. Yates told The New York Times, “Corporations can only commit crimes through flesh-and-blood people. It’s only fair that the people who are responsible for committing those crimes be held accountable. The public needs to have confidence that there is one system of justice and it applies equally regardless of whether that crime occurs on a street corner or in a boardroom.”
That is exactly right. The Times sited a 2014 criminal case against France’s biggest bank, BNP Paribus, in which the company pleaded guilty to a crime – including a violation of the Trading with the Enemy Act. The government collected an $8.9 billion fine, not one BNP employee was so much as charged with a crime – as if the corporation somehow did it without human help.
Why should doing something that warrants a fine of that scale be subject to less individual punishment than stealing $300 from a liquor store? That kind of disparity undermines the entire justice system.
What Yates could have added is that while prosecuting individuals for corporate crimes might not be popular in the executive suites, it would find favor with the public and could even boost the economy. Investors would have more confidence in their stock purchases knowing that there is real deterrence against illegal actions on the part of the corporations they are involved with.
It is true that white collar crime is inherently less violent than many street crimes. But a drug dealer or a burglar who has never shot, stabbed or raped anyone is still locked up. So too should someone who committed an offense in a corner office.
Only time will tell if the Justice Department is serious about this, but Lynch’s memo is a step in the right direction.
