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> The Justice Department levied a $775 million penalty and will install a monitor at the bank for three years to ensure compliance with the terms of the deferre

> The Justice Department levied a $775 million penalty and will install a monitor at the bank for three years to ensure compliance with the terms of the deferred prosecution agreement. These deferred prosecution agreements are horrible. Every major bank has SEVERAL of them. Deter much? Absolutely not. Here's what a recent editorial in the Financial Times had to say about this [1]: In the US, the most blatant expression of the failure to rein in the financial industry is the use of deferred prosecution agreements. These are deals which, despite sufficient evidence for criminal prosecutions, allow wrongdoers to pay fines and make commitments to improved conduct in return for avoiding the admission of criminal guilt. In an important speech last Wednesday, US Senator Elizabeth Warren condemned the widespread use of DPAs against financial industry lawbreakers. Her main argument is that DPAs’ main punitive tool — fines — have far too little deterrent effect. A fine paid by a corporation is essentially a raid on its shareholders’ funds. What is more, the lag from the commission of a financial crime to the implementation of a DPA is long. Both mean that even huge fines (some have been in the billions) are highly unlikely to make much difference to the economic prospects of the responsible individuals when they decide whether or not to break the law. To put it simply, too many get away with cheating. Criminal prosecutions would stand a better chance of holding culpable individuals to account — and therefore to discourage wrongdoing in the first place. Deterrence aside, there is also an important democratic value in lawbreakers being publicly branded as such. So Ms Warren is right. DPAs, originally intended to deal with low-stake crimes with little chance of repetition, have become a blight on a financial sector that has proved capable of crimes that are neither low-stake nor one-off. http://www.ft.com/cms/s/0/f26a9acc-e515-11e4-a02d-00144feab7de.html http://www.ft.com/cms/s/0/f26a9acc-e515-11e4-a02d-00144feab7...

cmdkeen 11y ago
The Economist also raised the point recently that these "offers" from the Government are essentially shakedowns, the risk to the bank if they actually fought the charges is so great that it is never in their interest to do anything but pay up. When you consider that States as well as the Federal Government are capable of doing this the potential for shenanigans increases. In both cases justice is not done, wrongdoers not actually punished etc.
- mathattack 11y ago
  It's bad for everyone - it's not fair to firms, and justice isn't served. But follow the $... The states get a lot of income, and executives stay out of jail. If every bank is getting shaken down equally, no exec loses relative to their peers. This isn't to say that I condone the bad behavior. If anything, I am amazed that more people haven't gone to jail.
cm2187 11y ago
But my understanding is that these agreements are not protecting individuals from criminal prosecution. They are protecting the bank from criminal prosecution. Some of the guys who committed these frauds will probably go to prison (though the burden of proof will be greater than for a civil case).
ddeck 11y ago
Indeed. It will be interesting to see how the government responds to non compliance with the terms. The government appointment monitor at HSBC has apparently been highly critical of the firm in his first annual report: The critical, 1,000-page report, which summarizes HSBC’s first year under a court-appointed monitor, raises doubts about how effective the government’s use of deferred- and non-prosecution agreements is in reining in wrongdoing and changing culture at the world’s largest banks. The report cites a litany of problems with the bank’s reforms and compliance procedures, finding that the pace of change is inadequate, said the people, who asked not to be named because the report isn’t public. In at least one instance, a bank manager shouted at an internal auditor who was critical of his work. In another example, the monitor discovered that documents justifying a decision to resolve a client alert were created after the fact although they were presented as being contemporaneous. http://www.bloomberg.com/news/articles/2015-03-30/hsbc-falls-short-on-compliance-monitor-said-to-report http://www.bloomberg.com/news/articles/2015-03-30/hsbc-falls...
ajtaylor 11y ago
There is plenty of evidence to conclude that fines and DPA don't work to change behavior. From my perspective, the only thing that stands a chance of affecting bank's (and other large corporation's) conduct is jail-time for executives. By all means put the little guys away who pushed the buttons, but make sure some higher ups also go to jail because ultimately they are responsible for the conduct of their business unit. Also, Congress should put together a law which forbids use of fines/sanctions as tax write offs. Not only are the fines not big enough, but they reduce taxable income! IIRC the Bank of America fines last year were used to write off hundreds of millions of dollars. It's inconceivable how corrupt the whole system has become.

cmdkeen 11y ago

The Economist also raised the point recently that these "offers" from the Government are essentially shakedowns, the risk to the bank if they actually fought the charges is so great that it is never in their interest to do anything but pay up. When you consider that States as well as the Federal Government are capable of doing this the potential for shenanigans increases. In both cases justice is not done, wrongdoers not actually punished etc.

mathattack 11y ago
It's bad for everyone - it's not fair to firms, and justice isn't served. But follow the $... The states get a lot of income, and executives stay out of jail. If every bank is getting shaken down equally, no exec loses relative to their peers. This isn't to say that I condone the bad behavior. If anything, I am amazed that more people haven't gone to jail.

cm2187 11y ago

But my understanding is that these agreements are not protecting individuals from criminal prosecution. They are protecting the bank from criminal prosecution. Some of the guys who committed these frauds will probably go to prison (though the burden of proof will be greater than for a civil case).

ddeck 11y ago

Indeed. It will be interesting to see how the government responds to non compliance with the terms. The government appointment monitor at HSBC has apparently been highly critical of the firm in his first annual report: The critical, 1,000-page report, which summarizes HSBC’s first year under a court-appointed monitor, raises doubts about how effective the government’s use of deferred- and non-prosecution agreements is in reining in wrongdoing and changing culture at the world’s largest banks. The report cites a litany of problems with the bank’s reforms and compliance procedures, finding that the pace of change is inadequate, said the people, who asked not to be named because the report isn’t public. In at least one instance, a bank manager shouted at an internal auditor who was critical of his work. In another example, the monitor discovered that documents justifying a decision to resolve a client alert were created after the fact although they were presented as being contemporaneous. http://www.bloomberg.com/news/articles/2015-03-30/hsbc-falls-short-on-compliance-monitor-said-to-report http://www.bloomberg.com/news/articles/2015-03-30/hsbc-falls...

ajtaylor 11y ago

There is plenty of evidence to conclude that fines and DPA don't work to change behavior. From my perspective, the only thing that stands a chance of affecting bank's (and other large corporation's) conduct is jail-time for executives. By all means put the little guys away who pushed the buttons, but make sure some higher ups also go to jail because ultimately they are responsible for the conduct of their business unit. Also, Congress should put together a law which forbids use of fines/sanctions as tax write offs. Not only are the fines not big enough, but they reduce taxable income! IIRC the Bank of America fines last year were used to write off hundreds of millions of dollars. It's inconceivable how corrupt the whole system has become.