Private: Too Big to Jail

by Brandon L. Garrett, Professor of Law, University of Virginia School of Law. Since the 2011 publication of Convicting the Innocent: Where Criminal Prosecutions Go Wrong, Professor Garrett has written widely on issues of criminal procedure, scientific evidence, corporate crime, and the law. This fall, Harvard University Press published his new book, Too Big to Jail: How Prosecutors Compromise with Corporations.

Prominent cries of “too big to jail” greeted the decision by federal prosecutors in 2012 not to convict HSBC, the international bank headquartered in London.  When HSBC was investigated for violations of international sanctions with countries like Cuba, Iran, Libya, Sudan and Burma, and, if that were not enough, facilitating the laundering of “at least $881 million in drug proceeds,” it paid a then-record penalty of $1.4 billion.  The scale of the violations was shocking.  And prosecutors described concerted efforts to help dirty money transactions avoid detection, with internal notes like:  “care sanctioned country,” “do not mention our name in NY,” or “do not mention Iran.”  Drug cartels used cash boxes “designed to fit the precise dimensions of the tellers’ windows in HSBC’s Mexico branches.”  When HSBC’s compliance officers raised alarms, they were “discouraged” and ignored.

“We accept responsibility for our past mistakes,” said the bank’s CEO at the time HSBC settled the case.  A corporate monitor would supervise a revamping of compliance.  The bank had hired hundreds of compliance employees and spent millions improving anti-money laundering programs.  But the bank was not convicted of any crime.  This galled advocates, editorial boards, members of Congress, and the public.  The same day prosecutors filed their case, they asked the judge to approve what is called a deferred prosecution agreement.  The case would be put on hold to give the bank a chance to show good conduct.  A money laundering conviction could have resulted in termination of the bank’s U.S. charter.  Yet no employees or officers were prosecuted either.  At the time, Assistant-Attorney General Lanny Brueur explained: “Our goal here is not to bring HSBC down, it’s not to cause a systemic effect on the economy, it’s not for people to lose thousands of jobs.”  And upon announcement of the settlement, HSBC shares rose. 

Such deals are now quite common. In my new book, Too Big to Jail: How Prosecutors Compromise with Corporations, I examine the rapidly evolving world of corporate prosecutions.  I assembled a vast database with information from corporate prosecution agreements and plea agreements from the past decade and beyond, all of which is available online. A decade ago, federal prosecutors adopted an approach favoring such out-of-court agreements. To be sure, my data shows how penalties in corporate prosecutions have exploded in recent years. But too often, I argue, prosecutors do not insist on punishments that are truly criminal. 

Companies cannot literally be put in jail, of course. And that is why adequately holding them accountable for crimes is so important.  Responsible officers and employees can be targeted. Firms can be structurally reformed.  Firms can pay deterrent fines and compensate victims. I found that many companies pay no fine, and even the biggest payments are typically greatly discounted. I describe how victims have intervened, like in the BP Texas City Refinery explosion case, to seek greater corporate accountability only to have their voices ignored. 

Real changes to end “too big to jail” are much needed. I suggest concrete improvements such as more stringent prosecution agreements, judicial oversight, and greater transparency.  I tell the success stories of companies like Siemens, which responded to the largest foreign bribery penalty of all time by totally transforming its leadership, compliance, and approach towards doing business. I describe how some judges have intervened. The judge in the HSBC case, noting “heavy public criticism” of the agreement, insisted on being kept apprised of the company’s compliance.  I tell the story of the KPMG tax shelter prosecutions, and describe the challenges faced by prosecutors pursuing individual wrongdoers. And I tell the story of the corporate criminal trial of the century, the Arthur Andersen trial, and how the very complexity of corporate crimes can obscure fault.

From the ongoing suffering caused by the last global financial crisis, to environmental disasters like the Gulf spill, to the harmful flow of dirty money to cartels, terrorists, and totalitarian regimes, corporate crimes impact us all.  That is why corporate prosecutions are themselves too important and too big to fail.