Too Big to Indict?

Attorney General Eric Holder told Congress earlier this month that the size of a banking firm would lead the Justice Department to refrain from bringing criminal charges against the bank.  Speaking about the banking giant HSBC among others, the Attorney General said that some of the institutions had become so large that bringing a criminal charge would have a negative impact on the national and even world economies.  In short, some of the world’s financial institutions are not only too large to fail but also too large to prosecute.

In the case of HSBC, investigators believe that the bank violated money laundering laws in transactions involving more than $200 trillion.  Rather than bring criminal charges, DOJ has proceeded against the bank civilly.

The decision to proceed civilly rather than by criminal indictment raises at least two significant issues.

The first concerns deterring financial institutions and their management from further criminal activity.  Institutional decisions are made by individuals within those institutions.  If those choosing to direct the bank to violate the law do not face any penalties, there is not a disincentive for these persons or others similarly situated to refrain from further criminal violations.

The second issue involved is somewhat related to the first.  A civil penalty may punish those innocent of wrongdoing while permitting those responsible to avoid sanctions.  For instance, in a publicly traded company the current stockholders may be harmed by the penalty, while management and prior stockholders remain untouched.

Assuming that certain financial institutions are so large that bringing criminal actions against them might cause unacceptable economic harm, there remains the alternative of charging individuals within these institutions for their criminal acts.  This approach targets the real problem of criminal malfeasance by members of the institution’s management.  Additionally, it allows that government to still proceed against the bank civilly if the facts so warrant this approach.

While bringing criminal actions against bank management may be difficult, in situations where the facts dictate a such criminal proceeding criminal prosecutions should go forward.

For a further discussion of the issue please see the following article from The Baltimore Sun.

About Richard Serafini

Welcome to my blog. I am an attorney and practice in the area of corporate trial work. Areas of particular emphasis are white collar defense, securities litigation, health care litigation, internal investigations, RICO, and financial litigation. I will be posting interesting developments in my areas of interest. I hope that you find this blog helpful and informative.