7 ms·

One of the recurring themes in comment sections around fines for banks and large businesses is that "the fine is not in proportion to the size of the business".

One of the recurring themes in comment sections around fines for banks and large businesses is that "the fine is not in proportion to the size of the business". I guess it makes sense to ask then, do we want to have fines that are proportional to the revenue/profit/"X"-value of a business (and how might that get gamed)? Where if a small business is sued for something like this, it will only pay $100 while a larger business for the same infraction will pay $100,000,000? And if we're ok with that, are we ok then also acknowledging that we completely disincentive any sort of legal enforcement of small businesses, from a cost/benefit perspective? I actually think the inverse is true: if the SEC has decided that the correct penalty for recordkeeping failures is $125M, it is likely a balance of proportionality to the crime, cost of enforcement, and proportion to victimhood of the crime. The question I always wonder around this is, how much of this $125M goes back towards victims (if any) and how much goes towards further agency enablement to pursue criminal activity? Is $125M enough for the SEC to open X more cases (knowing how overcapacity they and every other government agency are)?

dwater 5y ago
I think the layperson wants the fine to be big enough that it disincentivizes the bad behavior that resulted in the fine and behavior like it. JP Morgan recorded $12.1 Billion profit in 2020, so a fine of $125 Million is about 1% of their annual profit. I doubt Jamie Dimon is sweating too much about that.
- goopthink 5y ago
  For the record here, in addition to the fines, there is an additional unreported price of legal costs to fight this and compliance costs to fulfill obligations as per settlement. It's not quite an iceberg costs, but I guarantee they hired expensive lawyers to fight this beyond usual retainers.
wand3r 5y ago
I think it comes back to Fight Club: > Narrator: A new car built by my company leaves somewhere traveling at 60 mph. The rear differential locks up. The car crashes and burns with everyone trapped inside. Now, should we initiate a recall? Take the number of vehicles in the field, A, multiply by the probable rate of failure, B, multiply by the average out-of-court settlement, C. A times B times C equals X. If X is less than the cost of a recall, we don't do one. If the cost of the fine is less than the profit that can be made by ignoring it, it will get ignored. Especially because banks seem to have privatized profits and socialized losses. So I don’t think it should be necessarily proportional to a companies size but certainly a multiple of the cost of the externality. For example, if an oil company gets caught polluting, they should pay a big multiple of the damages so that it is ALWAYS cheaper ti invest in doing the right thing. Also, the SEC is not a particularly popular organization and I think they have lost a lot of trust (if they ever really had any)
- goopthink 5y ago
  I think that's absolutely and cynically correct. For example: there is a concept of parking tickets with fines. The fines are set to discourage certain behaviors while also not being cruel and unusual. Some people will never park "illegally" while others consider parking tickets to be the unfortunate risk or consequence of how they live their lives and do their jobs. The same is true for all penalties, period. This cynical calculus should be separated from how we feel about the organizations that commit things that result in fines. It's really easy to hate on banks and believe that every fine is justified and should actually be way bigger. Pitchforks and burning down the barn, ya know? But someone somewhere decided that calculus of appropriateness based on a variety of factors, and it is the lowercase-p political process to push for changes based on outcomes we see. But the pendulum swings both ways. China is an example of a country where if a company goes against government rules it can be dissolved, its leaders arrested and thrown in prison, based on criteria they have calibrated politically. Or in some other countries, you may be beheaded for social infractions. Not trying to reduce this to absurd (but real) logical extremes, but highlighting that this is precisely the difficult balance folks try to find, and our sense of proportionality is often affected by the current popular conception of them as an industry or as an individual company/person. I.e., just as many people hate on banks and think they should be punished higher, they turn around express complete disbelief at "unfair" fines and laws that are broken by innovators that run faster than regulations allow (read: tesla, uber, airbnb, etc). Sometimes we collectively feel fines are justified, sometimes not, sometimes too high, sometimes too low. Your calibration may vary.
  - luckylion 5y ago
    > But someone somewhere decided that calculus of appropriateness based on a variety of factors, and it is the lowercase-p political process to push for changes based on outcomes we see. Isn't it likely that this someone now works for a large bank and directly profits from their previous generous decisions?
blacksmith_tb 5y ago
So this isn't a fine but a settlement, so I suppose you could argue that JPM wouldn't have agreed to pay it if they couldn't afford it. Otherwise, the kind of structure you're describing is similar to punitive damages[1], which strike me as good in theory, if not practice. 1: https://en.wikipedia.org/wiki/Punitive_damages#United_States https://en.wikipedia.org/wiki/Punitive_damages#United_States
gostsamo 5y ago
A big business can make much more damage than a small one. Also, even relatively small fine can shake heavily a small business. So, yes, I'm totally for fines that communicate to the doer that the done is not good.
0_____0 5y ago
What are we calling a small business? For a 1-4 person outfit, $100, combined with the administrative hassle, may just be enough to get the business to amend some process. Even the moderately wealthy usually don't intentionally leave their cars parked where they'll get a ticket, because it's annoying to have to deal with it.
gorbachev 5y ago
The real problem is that the big banks break laws and regulations continuously. If you look at how many times have they been caught, the list is very, very long. Yet every time there are no real consequences. A fine here and there and settlement agreements written in a way that nobody gets any trouble for anything. I'm actually surprised the bank admitted to anything this time. Usually they just pay a fine, and admit to nothing. For heaven's sake, even HSBC drug cartel money laundering scandal results in not a single person going to prison or getting fired. HSBC even violated the additional rules they were supposed to be subjected to during a probation period after settling, and yet again nothing happened, except they paid a small(ish) fine. The entire industry is completely lawless.
- conductr 5y ago
  It’s true for all heavily regulated companies. The regulations can be difficult to interpret, exceedingly onerous, or overly verbose. I’ve worked in banking and healthcare and it’s not unusual for the regulators to fine you for something you didn’t know about (not even your army of attorneys or compliance department), or fine you because you interpreted things differently and now they disagree. Sometimes you change your internal operations and technologies, spending big $$$, only to find you to find out about some new case law that opposes your original interpretation. Then, your faces with the question of do we go through a massive re-implementation/disruption, or do we just take the risk. Usually, in my experience, the cost of fixing things internally far exceeds the cost of fines and so the business decisions often boil down to that simple ROI math.
  - thoughtstheseus 5y ago
    ^That's even after hiring the regulators themselves.
darkwizard42 5y ago
Why is it black and white about proportionality? Fines should have a minimum amount which should be designed to seriously cripple repeated bad actors and induce enough financial pain to force amending the fine-causing behavior. From a cost-benefit perspective… yes it makes sense to go after bigger companies creating larger more impactful violations. No one reasonably expects a small business to be fined $125M…
deleted 5y ago
[deleted]
notreallyserio 5y ago
I'd rather see the board and executives indicted (when it can be shown they are culpable) and then have the government seize the corporation. I mean, if we're doing civil asset forfeiture, let's take it all the way, eh? In my view mere dollar fines are insufficient when it comes to fraud.
- Karunamon 5y ago
  Administrative dissolution, aka corporate death penalty. I get this would be satisfying, but I'd really rather not provide more incentive for kleptocracy.
- sumedh 5y ago
  > then have the government seize the corporation. Then people lose jobs and that does not look good on TV.
spaetzleesser 5y ago
Fines should be a deterrent and not just cost of business. It seems we have reached a point where large companies can do shady stuff, make lots of money, pay a fraction of that as fine and nothing else happens. So they will keep doing it.

dwater 5y ago

I think the layperson wants the fine to be big enough that it disincentivizes the bad behavior that resulted in the fine and behavior like it. JP Morgan recorded $12.1 Billion profit in 2020, so a fine of $125 Million is about 1% of their annual profit. I doubt Jamie Dimon is sweating too much about that.

goopthink 5y ago
For the record here, in addition to the fines, there is an additional unreported price of legal costs to fight this and compliance costs to fulfill obligations as per settlement. It's not quite an iceberg costs, but I guarantee they hired expensive lawyers to fight this beyond usual retainers.

wand3r 5y ago

I think it comes back to Fight Club: > Narrator: A new car built by my company leaves somewhere traveling at 60 mph. The rear differential locks up. The car crashes and burns with everyone trapped inside. Now, should we initiate a recall? Take the number of vehicles in the field, A, multiply by the probable rate of failure, B, multiply by the average out-of-court settlement, C. A times B times C equals X. If X is less than the cost of a recall, we don't do one. If the cost of the fine is less than the profit that can be made by ignoring it, it will get ignored. Especially because banks seem to have privatized profits and socialized losses. So I don’t think it should be necessarily proportional to a companies size but certainly a multiple of the cost of the externality. For example, if an oil company gets caught polluting, they should pay a big multiple of the damages so that it is ALWAYS cheaper ti invest in doing the right thing. Also, the SEC is not a particularly popular organization and I think they have lost a lot of trust (if they ever really had any)

goopthink 5y ago
I think that's absolutely and cynically correct. For example: there is a concept of parking tickets with fines. The fines are set to discourage certain behaviors while also not being cruel and unusual. Some people will never park "illegally" while others consider parking tickets to be the unfortunate risk or consequence of how they live their lives and do their jobs. The same is true for all penalties, period. This cynical calculus should be separated from how we feel about the organizations that commit things that result in fines. It's really easy to hate on banks and believe that every fine is justified and should actually be way bigger. Pitchforks and burning down the barn, ya know? But someone somewhere decided that calculus of appropriateness based on a variety of factors, and it is the lowercase-p political process to push for changes based on outcomes we see. But the pendulum swings both ways. China is an example of a country where if a company goes against government rules it can be dissolved, its leaders arrested and thrown in prison, based on criteria they have calibrated politically. Or in some other countries, you may be beheaded for social infractions. Not trying to reduce this to absurd (but real) logical extremes, but highlighting that this is precisely the difficult balance folks try to find, and our sense of proportionality is often affected by the current popular conception of them as an industry or as an individual company/person. I.e., just as many people hate on banks and think they should be punished higher, they turn around express complete disbelief at "unfair" fines and laws that are broken by innovators that run faster than regulations allow (read: tesla, uber, airbnb, etc). Sometimes we collectively feel fines are justified, sometimes not, sometimes too high, sometimes too low. Your calibration may vary.
- luckylion 5y ago
  > But someone somewhere decided that calculus of appropriateness based on a variety of factors, and it is the lowercase-p political process to push for changes based on outcomes we see. Isn't it likely that this someone now works for a large bank and directly profits from their previous generous decisions?

blacksmith_tb 5y ago

So this isn't a fine but a settlement, so I suppose you could argue that JPM wouldn't have agreed to pay it if they couldn't afford it. Otherwise, the kind of structure you're describing is similar to punitive damages[1], which strike me as good in theory, if not practice. 1: https://en.wikipedia.org/wiki/Punitive_damages#United_States https://en.wikipedia.org/wiki/Punitive_damages#United_States

gostsamo 5y ago

A big business can make much more damage than a small one. Also, even relatively small fine can shake heavily a small business. So, yes, I'm totally for fines that communicate to the doer that the done is not good.

0_____0 5y ago

What are we calling a small business? For a 1-4 person outfit, $100, combined with the administrative hassle, may just be enough to get the business to amend some process. Even the moderately wealthy usually don't intentionally leave their cars parked where they'll get a ticket, because it's annoying to have to deal with it.

gorbachev 5y ago

The real problem is that the big banks break laws and regulations continuously. If you look at how many times have they been caught, the list is very, very long. Yet every time there are no real consequences. A fine here and there and settlement agreements written in a way that nobody gets any trouble for anything. I'm actually surprised the bank admitted to anything this time. Usually they just pay a fine, and admit to nothing. For heaven's sake, even HSBC drug cartel money laundering scandal results in not a single person going to prison or getting fired. HSBC even violated the additional rules they were supposed to be subjected to during a probation period after settling, and yet again nothing happened, except they paid a small(ish) fine. The entire industry is completely lawless.

conductr 5y ago
It’s true for all heavily regulated companies. The regulations can be difficult to interpret, exceedingly onerous, or overly verbose. I’ve worked in banking and healthcare and it’s not unusual for the regulators to fine you for something you didn’t know about (not even your army of attorneys or compliance department), or fine you because you interpreted things differently and now they disagree. Sometimes you change your internal operations and technologies, spending big $$$, only to find you to find out about some new case law that opposes your original interpretation. Then, your faces with the question of do we go through a massive re-implementation/disruption, or do we just take the risk. Usually, in my experience, the cost of fixing things internally far exceeds the cost of fines and so the business decisions often boil down to that simple ROI math.
- thoughtstheseus 5y ago
  ^That's even after hiring the regulators themselves.

darkwizard42 5y ago

Why is it black and white about proportionality? Fines should have a minimum amount which should be designed to seriously cripple repeated bad actors and induce enough financial pain to force amending the fine-causing behavior. From a cost-benefit perspective… yes it makes sense to go after bigger companies creating larger more impactful violations. No one reasonably expects a small business to be fined $125M…

deleted 5y ago

[deleted]

notreallyserio 5y ago

I'd rather see the board and executives indicted (when it can be shown they are culpable) and then have the government seize the corporation. I mean, if we're doing civil asset forfeiture, let's take it all the way, eh? In my view mere dollar fines are insufficient when it comes to fraud.

Karunamon 5y ago
Administrative dissolution, aka corporate death penalty. I get this would be satisfying, but I'd really rather not provide more incentive for kleptocracy.
sumedh 5y ago
> then have the government seize the corporation. Then people lose jobs and that does not look good on TV.

spaetzleesser 5y ago

Fines should be a deterrent and not just cost of business. It seems we have reached a point where large companies can do shady stuff, make lots of money, pay a fraction of that as fine and nothing else happens. So they will keep doing it.