How to Go After White-Collar Crime

No top executive stood trial for the 2008 financial crisis. What to do next time
Illustration by Bloomberg View

The senior executives who played leading roles in the 2008 financial crisis can breathe a sigh of relief. If any committed crimes, the statute of limitations will run out for most of them this year. It’s safe to say nobody will go to jail.

One doesn’t have to presume guilt to raise questions: Did prosecutors exhibit impressive restraint in refusing to satisfy the public’s desire for retribution, or are they just incapable of punishing criminals in positions of power? Are changes needed in the way the criminal justice system handles white-collar crime?

Prosecutors often argue that while executives may have acted recklessly and made mistakes, that doesn’t mean they committed crimes. If so, then the 2008 crisis would be unique in its immaculate conception. After the savings-and-loan bust of the 1980s, more than 1,000 people were charged and more than 100 company officers and directors served prison terms.

Why have the executives of 2008 been so absent from criminal proceedings? It’s safe to assume that legal sophistication, combined with the complexity of the instruments and institutions involved, helps insulate them from responsibility. That said, prosecutors have also changed the way they operate: Going after companies has proved more advantageous for them than the painstaking work of building cases against highly placed people.

Large corporations have demonstrated a willingness to pay eye-popping sums, at shareholders’ expense, to avoid the uncertainty and embarrassment of extended trials. Prosecutors with limited resources, no matter how dedicated to justice they may be, can’t ignore the attractions of such negotiated settlements.

This has consequences. If executives can buy impunity using shareholders’ money, punishment loses its deterrent effect. If prosecutors can extract big-ticket settlements without even filing charges, as they do in so-called nonprosecution agreements, there’s little to protect companies from shakedowns. If U.S. attorneys spend their time cutting deals with companies, they lose the skills needed to bring complex cases to trial.

The Justice Department and Congress can make it harder for prosecutors to take the easy way out. The attorney general can order U.S. attorneys not to take action against companies unless individuals are being charged as well. Nonprosecution agreements should be eliminated; if a case is too flimsy to file charges, drop it. When it comes to deferred prosecution agreements, in which prosecutors file and settle charges, Congress—or the Judicial Conference, which drafts changes to the rules of criminal procedure—can give judges specific powers to ensure that the deals adequately serve the public interest.

The lack of judicial clarity from the 2008 crisis fuels resentment toward bankers as a class and supports the narrative that highly placed people are above the law. Everybody, including executives, should be interested in making sure that, next time around, the justice system is capable of doing its job.

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