How to hold execs accountable when big banks rob customers
© Greg Nash

The shocking news that millions of fake accounts were created at Wells Fargo in an apparent attempt to boost sales and profitability figures has once again stoked the public's dissatisfaction with corporate scandals that result in few, if any, consequences for corporate executives and has reignited calls for new laws to hold such executives accountable.

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At a Senate Banking Hearing, Sen. Elizabeth WarrenElizabeth Ann WarrenTrump hits polling on Fox News: 'Something weird going on at Fox' Trump hits polling on Fox News: 'Something weird going on at Fox' 2020 Democrats look to cut into Biden's lead with black voters MORE (D-Mass.) grilled then-Wells Fargo CEO John Stumpf and concluded by proclaiming, "The only way that Wall Street will change is if executives face jail time when they preside over massive frauds. We need tough new laws to hold corporate executives personally accountable, and we need tough prosecutors who have the courage to go after people at the top. Until then, it will be business as usual."

So what would those tough new laws look like?

A possible answer comes from an unlikely source: legislation unveiled in the aftermath of the General Motors ignition switch scandal.

In 2015, Sen. Richard Blumenthal (D-Conn.) reintroduced the Hide No Harm Act (S. 2140), which would make it a crime for corporate executives to knowingly conceal dangerous products or unsafe working conditions that lead to a consumer or worker death.

The bill is intended to prevent companies from hiding deadly defects in their products or workplace conditions and incentivize executives to report such dangers to federal authorities once they are discovered.

At both of the recent hearings, Stumpf was repeatedly asked when he learned about the creation of fake accounts and what actions he took in response. Judging from the vague responses and lingering questions, no one was satisfied with his answers.

Last week, Public Citizen released a report documenting the explosion of "cross-selling" at Wells Fargo dating back to the mid-'90s, well before the assertions by Wells Fargo that fraudulent account creation began in 2011.

The Wells Fargo scandal, once again, has raised suspicions that government prosecutors are not doing all that they can to go after Wall Street executives, instead relying on fines that amount to little more than the cost of doing business for large financial institutions.

The Department of Justice admitted as much when Assistant Attorney General Sally Yates circulated a memo last year announcing a change of direction in white-collar criminal prosecution by focusing specifically on the need to prosecute corporate executives.

The Yates memo also detailed how difficult it can be under current law to hold corporate executives accountable. The memo points to high criminal intent standards that are challenging for prosecutors to meet. Corporate settings diffuse the lines of responsibility and decision making, and executives may be insulated from the day-to-day activities of those carrying out their decisions.

This combination has frustrated not only prosecutors but also the public, both of whom want see the corporate executives responsible put behind bars. After all, we aggressively prosecute street criminals when they rob banks.

Why shouldn't we prosecute big banks when they rob customers?

Community banks and their executives have not been able to escape prosecution like their big bank competitors. That's probably because community banks do not pose the same potential systemic threats that big banks do and because their executives are more directly involved with managing personnel and daily operations.

The public rightly sees the unfairness in this disparate treatment and is losing faith in the basic principle of our justice system that no one is above the law.

All of this points to the need for a version of the Hide No Harm Act that applies to the financial sector. Such a bill would put the burden on bank executives to report to federal regulators any illegal or fraudulent practices that hurt customers or shareholders right when they learn of it. If they don't, they would risk jail time.

With every passing Wall Street scandal, it's becoming harder for Congress and the public to believe that executives at the very top had no knowledge or involvement and shouldn't be held accountable.

It's long past time that we made CEOs and other corporate executives in the financial sector responsible for the wrongdoing that occurs on their watch.

Narang is the regulatory policy advocate for Public Citizen’s Congress Watch division.


The views expressed by contributors are their own and not the views of The Hill.