On Monday, U.S. Attorney General Eric Holder publicly addressed mounting criticism of the DOJ’s treatment of financial institutions implicated in potential criminal misconduct: simply put, “there is no such thing as too big to jail.” Though Holder noted that some have suggested that the size and influence of certain financial institutions effectively renders them immune from prosecution, Holder maintained that such a view has been rejected by the Department of Justice. Holder’s recent comments signal a markedly sharper tone compared to his Senate testimony last year, when he posited that it becomes difficult for the DOJ to prosecute financial institutions that have become so large that criminal charges would “have a negative impact on the national economy, perhaps even the world economy.” Holder’s testimony sparked criticism that just as the federal government had deemed some banks “too big to fail” during the financial crisis, so too had the DOJ determined that some banks were “too big to jail.” Putting the “too big” rhetoric aside, the obvious fact is that no corporate entity can literally be “jailed.” If the DOJ does pursue criminal charges against an entity, a common outcome is a settlement coupled with large fines and remedial undertakings. For instance, in 2012, HSBC agreed to a deferred prosecution agreement with the DOJ to settle allegations of money laundering. In that settlement, HSBC was required to pay $1.92 billion in forfeiture and fines, but avoided actual criminal indictment.
The Arthur Andersen Effect Revisited
When corporations are required to provide admissions of guilt, mitigating the collateral consequences can prove vital. When Arthur Andersen was criminally convicted in 2002, it was forced to relinquish its CPA license and cease practicing before the SEC, which made continued operation of the company all but impossible. Since then, entities embattled with the DOJ have struggled to resolve matters in a way that satisfies enforcement officials, while at the same time protects the ongoing existence of the company. Certain charges, such as money laundering, could potentially cut-off a bank from existing pools of investors like pension funds and ultimately cost the bank its charter to operate in the United States. Thus, where the DOJ pushes for admissions of guilt, corporations are sometimes able to agree with the DOJ to have an offshore entity take the hit. Such was the case in 2012, when UBS agreed to pay about $1.5 billion to settle LIBOR rigging charges, and a unit in Japan, where much of the wrongdoing occurred, pleaded guilty to criminal fraud. Key in that settlement was the fact that it was the offshore Japanese unit of UBS that entered the guilty plea. Some have suggested that such an outcome might occur once more, amid speculation that Credit Suisse and BNP Paribas SA are currently in the DOJ’s crosshairs. While not specifying any particular investigation during his remarks this past Monday, Attorney General Holder noted that he is aware of the potential collateral consequences that financial institutions face—including loss of charter—and is open to coordinating with financial regulators when deciding whether to bring criminal sanctions in such cases.
Individuals at Risk, Too
Of course, the elephant in the room is the extent to which individuals might be the next targets of criminal enforcement. Remember the Senate testimony where Holder was first accused of suggesting that some banks were “too big to jail”? During that same testimony, Holder also commented that in light of the difficulties of criminally prosecuting large financial institutions, “the greatest deterrent effect is to prosecute the individuals in the corporations that are responsible for [the misconduct].” And though prosecuting individuals brings its own set of difficulties for the DOJ, Holder suggested on Monday that he is up to the challenge, stating that “no individual or entity that does harm to our economy is ever above the law.”