Too big to jail?

Attorney General Eric HolderEric H. HolderEric Holder group to sue Georgia over redistricting Eric Holder to Trump: 'Taking a knee is not without precedent' Juan Williams: Momentum builds against gerrymandering MORE’s recent comments at a Senate Banking Committee hearing regarding criminal prosecutions against large banks has been widely reported as suggesting some financial institutions are “too big to jail.” 

Unfortunately, that easy catchphrase badly misstates and simplifies long standing Justice Department prosecution practices. No doubt the Attorney General had no intention to so indicate.

That interpretation also may mislead our citizens into believing some banks and other major financial firms are beyond the reach of the federal enforcement apparatus. They are not, but neither should financial institutions, or any other type of corporation, be subject to prosecution without careful consideration of all factors that attend to the sound exercise of prosecutors’ discretion.

Having served in the Justice Department for 15 years, chaired the interagency financial crimes task force during the savings and loan crisis, and directly prosecuted major bank cases such as the global BBCI scandal, I can personally attest that there is simply no “too big to jail” policy or practice at the DOJ, the SEC or other federal enforcement agencies with financial jurisdiction. On the contrary, federal enforcers have for decades vigorously investigated and prosecuted both executives of major financial institutions and, where it is in the overall federal interest to do so, banks and other financial institutions themselves. 

Our constitutional system entrusts prosecutors with absolute discretion to decide who and what to prosecute in criminal cases. Those decisions are not subject to review or any other second-guessing by courts. 

Recognizing the value of this independent prosecutorial discretion, most responsible politicians, especially those serving in Congress, also refrain from second-guessing these decisions and avoid advocating for or against a particular prosecution. Because their decision-making enjoys this independence, in exercising that responsibility, prosecutors are charged with taking into account a very wide range of factors. No two cases are precisely alike, and thus the decisions as to whether to charge a crime is a very individualistic determination in any given case.

Prosecutors do carefully take into account the collateral consequences of a prosecution. In the finance industry, consideration of the collateral effects of a prosecution is particularly important because financial institutions are critical components of our economy. 

Without sound, well-managed and functioning financial institutions, our economy cannot function. When one is weakened or destroyed, the overall economic system suffers. The failures of the most recent financial crisis illustrate the point. This is not a question of too big to fail, but rather factoring in to the exercise of prosecutorial discretion the important role of the payments system and capital intermediation. 

Thus, it is entirely appropriate that prosecutors consider, among many factors, the collateral effects of bringing a case because a given institution may be an important, in some cases critical, gear in our economic machinery. Proper prosecution decision-making is not done through a binary, yes or no, process, but rather looks at all the options available to secure the federal interest in a given case.  

Among the factors that are considered in assessing how to achieve federal enforcement objectives are alternatives to an institutional prosecution. 

This includes possible prosecution of individuals determined to be responsible for unlawful conduct. Prosecuting responsible individuals makes obvious sense because financial institutions and other corporations cannot think and form criminal intent, whereas the individuals who direct and manage them do the thinking and embody actual intent. 

Prosecuting individuals who venture into the zone of criminal conduct can have a salutary effect on legal compliance not just at the company or firm involved but also on institutions throughout an industry.

Another factor prosecutors can consider is whether penalties against institutions are available through non-criminal enforcement proceedings. After all, corporations cannot be imprisoned.

In most cases, any sanction available against a company as a result of a criminal prosecution can be obtained through alternative enforcement means. The only additional sanction on a corporation that the criminal process may produce is the public disgrace of a criminal conviction. 

As a general proposition, prosecutors will weigh the benefits of imposing the stain of conviction against the many collateral consequences that it may exact, including on innocent parties such as a company’s employees, shareholders and customers. When an institutional prosecution can have adverse consequences on the entire economic system, responsible prosecutors will rightfully consider alternatives to proceeding with a criminal charge.

It would be a disservice to our dedicated career prosecutors to mistake the careful consideration of the collateral consequences of bringing a case against a financial institutions for a simplistic “too big to jail” policy. That policy simply does not exist. 

Terwilliger is a partner at Morgan Lewis where he is co-head of the firm’s global white collar and government investigations practice. He previously served as deputy attorney of the United States, the No. 2 position at the Department of Justice, as well as a United States Attorney and a frontline federal prosecutor.