Why There Have Been Few Criminal Cases Against Bad Bankers

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Many questions have been raised about the lack of criminal prosecutions by the Justice Department given evidence of fraud and other crimes during the financial crisis. This article explains the alternative to criminal prosecution that is favored by the Justice Department. The alternative is called deferred prosecution agreements. Companies are told that they are under investigation and they are given the opportunity to hire a law firm that will investigate the alleged wrong doing and recommend corrective action. Penalties may also be assessed where they are called for. The intent is to provide restitution to those who may have been harmed by the behavior and to better manage the scarce resources of the Justice Department. The SEC, which is similarly affected by resource scarcity, also uses the deferred prosecution approach to deter criminal behavior by corporate executives.

There are many arguments against this approach. It is certainly a weaker approach to crime control and a poor deterrent to criminal behavior. It also gives the appearance of a two tiered criminal justice system in which white collar crime is not as vigorously prosecuted as blue collar crime. At a deeper level, it may affect the reputation of the US Justice Department, and the SEC. The US has especially benefited from the reputation that it has had for policing the information that corporations provide to investors. This has made the US a more attractive country in which to invest. Some even argue that the US is moving in the direction of other countries which are sometimes referred to as "Banana Republics" because of widespread corruption in law enforcement and other aspects of government.