Ending Corporate Impunity

Corporate America’s embrace of voting rights, racial justice and other social causes is laudable, but it is also designed to make us forget how much the private sector profited from the retrograde policies of the Trump Administration. This was not just a matter of the business tax cuts.

Thanks to deregulation and weakened enforcement, big business was able to operate with a much higher level of impunity. The latest evidence of this comes in a new report from Public Citizen documenting the declining volume of prosecutions of corporate crime during the Trump years.

Using data from the U.S. Sentencing Commission, Public Citizen finds that the number of federal prosecutions of corporate criminals fell to a new low of just 94 in fiscal year 2020. This was a drop of 20 percent from the year before, a plunge of two-thirds from the peak of 296 in 2000, and the lowest on record since the Commission started releasing corporate prosecution statistics in 1996.

While adopting a lackluster approach to prosecutions, the Justice Department was more inclined to offer rogue corporations leniency agreements. Employing data from the Corporate Prosecution Registry, Public Citizen points out that DOJ substantially increased its use of deferred prosecution and non-prosecution agreements in FY2020.

Connecting the two trends, Public Citizen finds that the leniency agreements amounted to 32 percent of the total of all cases against corporations, a record amount.

The report dispels any suggestion that declining prosecutions and increasing leniency agreements are signs that Corporate America has become better at obeying the law: “On the contrary, they are signs that, despite Trump’s ‘law and order’ rhetoric and his administration’s brutal crackdowns on immigrants, racial justice protestors and low-level offenders, the administration went out of its way to avoid prosecuting corporate criminals. The result is the creation of an environment of corporate impunity.”

The Public Citizen report focuses on criminal cases, but there were similar trends in civil enforcement. For example, the data in Violation Tracker shows that the DOJ’s civil division, which handles matters such as False Claims Act cases against rogue federal contractors, announced only 44 corporate pleas and settlements in 2019, down from 137 announced by the Obama DOJ in 2015.

Fortunately, these findings are now mainly a matter of historical interest. The current question is how things will change under the Biden Administration. Since Merrick Garland has been attorney general for a short time, it is too soon to reach any clear conclusions.

It is widely expected that DOJ will be taking a more aggressive stance. One major law firm advised its clients that white collar enforcement activity will “substantially increase,” adding: “Not only will the government take a more aggressive posture, but the proliferation of whistleblower programs and the creation of new enforcement tools means that prosecutors will be armed with more information and resources than ever. Companies should remain vigilant as risks shift and consider taking steps to ensure they adapt their compliance programs and controls accordingly.”

When corporations are made to feel they need to be more careful, we humans can breathe a bit easier.

The Violation Tracker Origin Story

The article and dazzling infographics on Violation Tracker just published by Fortune are not only great publicity for the database. They also provide an opportunity to recall how the idea for a resource on corporate misconduct came about in the first place.

As the Fortune piece mentions, the origin story dates back to 1980, when I was a young researcher on the staff of that same magazine. Yet there is more to be said about what occurred behind the scenes during that project and its aftermath.

Back then, Irwin Ross, a contributor to the magazine, had seen a news article about small-business corruption in Chicago and thought it would be interesting to explore similar behavior among large companies. His assumption—and that of Fortune’s editors—was that illegality was rare in big business.

After being assigned to the project, I set out to disprove that premise by gathering as many cases as I could involving our sample universe of just over 1,000 companies that had appeared on the Fortune 500 and related lists at any point during the previous ten years. The editors decided to limit the scope of the research to five categories: bribery, criminal fraud, illegal political contributions, tax evasion, and criminal antitrust violations.

To the dismay of the editors, I found that quite a few of the corporations – 117 to be precise – had been the subject of a successful federal prosecution during the specified time period. Among these was Fortune’s then-parent, Time Inc., whose subsidiary Eastex Packaging had pleaded no contest to a price-fixing charge.  

After much hand-wringing, Fortune’s editors decided to publish the list of the cases, along with an article by Ross, in the December 1, 1980 issue with the headline “How Lawless Are Big Companies?” and the subhead “A look at the record since 1970 shows that a surprising number of them have been involved in blatant illegalities.” The story was featured on the cover with a photograph depicting an executive being fingerprinted by a U.S. Marshal.

As one might expect, the companies included in the list were quite displeased. To their credit, Fortune’s editors did not retract or disown the article, but they did agree to give one of the corporations an opportunity to respond.

The December 29, 1980 issue contained a piece by William Lurie, general counsel of International Paper, headlined “How Justice Loads the Scales Against Big Corporations.” Calling my list “simplistic and misleading,” he tried to explain why IP had felt compelled to plead nolo contendere to price fixing charges. His argument was essentially that it was simply too risky for a company to fight such charges in court, given that a guilty verdict would open the door to crushing damages in a follow-on civil suit.

This was not exactly a profession of innocence. In fact, as the Fortune article noted and Lurie acknowledged, no contest is tantamount to a guilty plea. Lurie’s argument, like nolo itself, served as a way for corporations to save face after being labeled corporate criminals. His piece also took the pressure off Fortune editors for diverging from what was then their unvarying defense of corporate behavior.

For me, the experience created a life-long fascination with documenting corporate misconduct. I later learned that this kind of research had begun much earlier, especially through the work of the sociologist Edwin Sutherland. When his book White Collar Crime was published in 1949, the company names were removed. It was only in 1983 that an unexpurgated version was published by Yale University Press.

Following in the tradition of Sutherland’s book and other work such as the Project On Government Oversight’s Federal Contractor Misconduct Database, Violation Tracker is designed to show that lawlessness among large corporations is a problem that persists.

Note: drop me a line at pmattera@goodjobsfirst.org if you can’t get behind the Fortune paywall and want to see the whole story.

The 2020 Corporate Rap Sheet

For all of his populist bluster, Donald Trump has done little during his four years in office to stem the power of big business. He criticizes corporations only when he feels personally slighted or when it fits into one of his many outlandish conspiracy theories.

Fortunately, career officials at regulatory agencies and career prosecutors at the Justice Department, as well as those at the state level, have continued doing their jobs. The following is a selection of significant cases resolved during 2020.

Opioid market abuses: The Justice Department announced an $8 billion global resolution of its criminal and civil investigations into abuses by Purdue Pharma LP. The company agreed to plead guilty to three felony counts and pay criminal fines and forfeitures of $5.5 billion and $2.8 billion in a civil settlement. Given that the company is going through bankruptcy, it is unclear how much of this will actually be paid.

Bogus bank accounts: As part of the ongoing prosecution of Wells Fargo for pressuring employees to meet unrealistic sales goal by creating bogus accounts without customer permission, the Justice Department announced that the bank would pay $3 billion to resolve criminal and civil charges. Wells was allowed to enter into a deferred prosecution agreement to avoid a guilty plea.

Foreign bribery: Goldman Sachs and its Malaysian subsidiary admitted to conspiring to violate the Foreign Corrupt Practices Act in connection with a scheme to pay over $1 billion in bribes to Malaysian and Abu Dhabi officials to obtain lucrative business for Goldman Sachs, including its role in underwriting approximately $6.5 billion in three bond deals for 1Malaysia Development Bhd.  Goldman Sachs agreed to pay more than $2.9 billion and disgorge $606 million as part of a coordinated resolution with criminal and civil authorities in the United States, the United Kingdom, Singapore, and elsewhere.

Emissions cheating: The Department of Justice, the Environmental Protection Agency, and the California Air Resources Board announced a $1.5 billion settlement with German automaker Daimler AG and its American subsidiary Mercedes-Benz USA, LLC resolving alleged violations of the Clean Air Act and California law associated with emissions cheating.

False claims and kickbacks: Novartis agreed to pay over $642 million in separate settlements resolving claims that it violated the False Claims Act.  The first settlement pertained to the company’s alleged illegal use of three foundations as conduits to pay the copayments of Medicare patients.  The second settlement resolved claims arising from the company’s alleged payments of kickbacks to doctors.

Tax evasion: Bank Hapoalim of Israel agreed to pay a total of more than $600 million in penalties to resolve criminal allegations by the Justice Department that it conspired with U.S. taxpayers to hide assets and Income in offshore accounts. The parent company entered into a deferred prosecution agreement while its Swiss subsidiary pled guilty.

Illegal robocalls: Dish Network agreed to pay $210 million to resolve a long-running federal-state lawsuit alleging that the company engaged in illegal telemarketing through unwanted robocalls to thousands of people on the Do Not Call registry.

Spoofing: The Commodity Futures Trading Commission and the Justice Department announced that JPMorgan Chase would pay $920 million to resolve civil and criminal allegations involving deceptive conduct that spanned at least eight years and involved hundreds of thousands of spoof orders in precious metals and U.S. Treasury futures contracts on the Commodity Exchange, Inc., the New York Mercantile Exchange, and the Chicago Board of Trade.

Predatory lending: Banco Santander’s U.S. arm agreed to pay $550 million to resolve multistate litigation alleging that the bank, through its use of proprietary credit scoring models to forecast default risk, knew that certain consumer segments were likely to default, yet issued high-interest automobile loans to them anyway.

Corruption: A criminal investigation of Commonwealth Edison was resolved with a deferred prosecution agreement under which ComEd agreed to pay $200 million and admit it arranged jobs, vendor subcontracts, and monetary payments associated with those jobs and subcontracts, for various associates of a high-level elected official for the state of Illinois, to influence and reward the official’s efforts to assist ComEd with respect to legislation.

Defrauding investors: SCANA Corp. and its subsidiary SCE&G agreed to settle a Securities and Exchange Commission lawsuit charging them with defrauding investors by making false and misleading statements about a nuclear plant expansion that was ultimately abandoned.  The company agreed to pay a $25 million penalty and $112.5 million in disgorgement.

Mortgage abuses: Nationstar Mortgage, which does business as Mr. Cooper, agreed to pay $86.8 million to resolve federal and multistate allegations that the mortgage servicer engaged in unlawful practices in the wake of the 2008 financial crisis. The settlement addressed alleged misconduct regarding servicing transfers, property preservation, loan modifications, and other issues, which in some cases led to improper foreclosure or borrowers being locked out of their homes.

Labor relations violations: CNN agreed to pay $76 million in backpay, the largest monetary remedy in the history of the National Labor Relations Board, to resolve a case that originated in 2003 when CNN terminated a contract with Team Video Services and hired new employees to perform the same work without recognizing or bargaining with the two unions that had represented the TVS employees.

Additional details on these cases can be found in Violation Tracker. Some will appear next week in an update to the database that will increase the number of its cases to 444,000 and the penalty total to $650 billion.

Barr Opts for Prisoner Executions over Corporate Prosecutions

The priorities of the Barr Justice Department came to light with the revelation that it is rushing to schedule a series of federal prisoner executions before the Trump Administration comes to an end in January. DOJ is exhibiting a lot less urgency about meting out penalties for corporate defendants.

Four years ago at this time, the Obama Justice Department used its final weeks to negotiate an extraordinary wave of settlements with big business, collecting more than $30 billion in fines and settlements. During a period of ten days there were four ten-figure settlements: Deutsche Bank’s $7.2 billion toxic securities case; Credit Suisse’s $5.3 billion case in the same category; Volkswagen’s $4.3 billion case relating to emissions fraud; and Takata’s $1 billion case relating to defective airbag inflators.

The rush to settle was based at least in part on concern that the incoming Trump Administration would downplay the prosecution of corporate offenses as part of the assault on government regulation. That concern turned out to be valid, though not to the extent many observers expected. Prosecutions and regulatory enforcement have declined in some areas but have not disappeared.

Since this year’s election results became clear, there have been no billion-dollar resolutions announced by DOJ. During this time the only significant announcement was one involving a $135 million settlement of a foreign bribery case against Vitol, the secretive European commodity trading company.

While Barr is not yet using the lame duck period to resolve cases, DOJ was showing some prosecutorial vigor in a few areas even before the election. One of these is the enforcement of the Foreign Corrupt Practices Act. Even though Trump himself has reportedly sought to strike down the law, claiming it is unfair to U.S. companies, the Justice Department has gone on bringing cases.

The Vitol action is one of five FCPA settlements DOJ has announced during the past few months. These follow about 20 others since Trump took office. There are a few things to note about these cases. First, the corporate defendant, while paying a penalty, was almost always offered a way to avoid a guilty plea, usually through a deferred prosecution or non-prosecution agreement.

The second significant feature of Trump’s FCPA cases is that most of them were brought against corporations headquartered outside the United States. Trump’s criticism of the law may have prompted DOJ to focus more on foreign culprits, perhaps using FCPA as a surreptitious trade weapon. When DOJ pursued a case against the very American company Walmart, the department was accused of going easy on the giant retailer in the settlement negotiations.

Occasionally, even Barr’s DOJ has had to get tough with a U.S. company in an FCPA case. That happened in October, when Goldman Sachs had to pay more than $2 billion to resolve its culpability in the notorious 1Malaysia Development Bhd. (1MDB) case, which also involved prosecutors from other countries such as the United Kingdom and Singapore.

Assuming he does not get fired for refusing to go along with Trump’s election fraud delusion, Barr still has some time to end his tenure in a blaze of corporate settlements. It would be a better legacy than a brazen misuse of the death penalty by a lame duck attorney general.

The $8 Billion Slap on the Wrist

In the normal course of events, an $8 billion penalty and a guilty plea would represent a landmark event in the history of corporate crime enforcement. The newly announced resolution of charges against Purdue Pharma is, however, a disappointment and a missed opportunity to mete out appropriate punishment to one of the most egregious rogue companies this country has ever seen.

Let’s start with the monetary penalty. The $8 billion amount ranks 11th among all the fines and settlements collected in Violation Tracker. It is surpassed by penalties paid by companies such as BP, Volkswagen, Bank of America and JPMorgan Chase.

As bad as the environmental and financial conduct of those corporations may have been, it is likely that Purdue Pharma has caused much greater harm. It bears a significant amount of responsibility for the hundreds of thousands of people who have died from overdoses after becoming addicted to opioids the company recklessly promoted.

There is also the issue of the economic costs to society. The Society of Actuaries has estimated those costs to be as high as $214 billion a year. Looked at in comparison to the human and economic costs, the $8 billion penalty seems woefully inadequate—all the more so because it is unclear how much of that amount the bankrupt company will actually pay.

It is good that the Justice Department extracted a guilty plea from Purdue rather than its frequent practice of allowing large companies to sign deferred prosecution or non-prosecution agreements. Yet this is a case which called out for individual as well as corporate criminal charges. DOJ got the Sackler Family, which controls Purdue, to pay out $225 million—yet that is a pittance in relation to the billions the family has taken from the company.

One unusual feature of the case resolution is the provision that will require Purdue to emerge from bankruptcy as a benefit company supposedly dedicated to serving the public rather than maximizing profits. It remains to be seen how that would work, but it is already troubling that the creation of the trust would allow Purdue to reduce its criminal penalty substantially.

The good news is that the DOJ settlement is not the end of the story. The statement that the Sackler family has not been released from potential federal criminal liability is not expected to mean much, especially under a Trump Administration.

The possibility of more aggressive action can be found at the state level. Numerous state attorneys general have sharply criticized the deal and have vowed to pursue their own cases. “I am not done with Purdue and the Sacklers,” warned Massachusetts AG Maura Healey.

Let’s hope that state prosecutors do their job, because their federal counterparts have failed to adequately crack down on the worst corporate violators and the individuals behind them.

Corporate Culprits Receiving COVID Bailouts

In implementing the CARES Act passed by Congress to rescue the economy from the effects of the pandemic, the Trump Administration has directed tens of billions of dollars in aid to companies with a track record of misconduct. This transfer of public wealth to private bad actors will likely turn out to be more expensive than the TARP bailout of the banks a decade ago, given that much of the new aid will not be repaid.

My colleagues and I at Good Jobs First have found that more than 43,000 regulatory violators and other business miscreants have so far received $57 billion in grants and $91 billion in loans, including many that are forgivable. Over the past decade, the penalties paid by these companies for their misdeeds amounted to more than $13 billion. Our findings are summarized in a new report titled The Corporate Culprits Receiving COVID Bailouts.

We derived these numbers through a careful comparison of the CARES Act data we have compiled for our Covid Stimulus Watch website and the entries covering the past decade in Violation Tracker.

More than 87 percent of the CARES Act recipients with a record of misconduct are small businesses, while the other 13 percent are units and subsidiaries of larger companies. The latter received $55 billion in grants and $53 billion in loans, while the smaller companies received $2 billion in grants and $38 billion in loans. The large companies account for 90 percent of the penalty dollars.

The largest violation category among all 43,000 companies is government contracting at $5.6 billion, or 42 percent of the total. Employment-related penalties and consumer protection penalties each add up to about $3 billion (23 percent), while environmental and safety penalties total $1.6 billion (12 percent).

Hospitals (both for-profit and non-profit) and other providers that received funding from healthcare-related CARES Act programs account for $9 billion of the penalties, or 68 percent of the total. More than half of these penalties derive from Medicare and Medicaid billing fraud.

Recipients of small-business loans account for $3 billion of the penalties (23 percent), with the largest portions coming from wage theft and workplace safety and health violations.

There are two other groups of CARES Act recipients with a significant history of misconduct: colleges and universities getting aid through the Higher Education Emergency Relief Fund and airlines receiving massive levels of assistance through the Payroll Support Program. They paid $900 million and $600 million in penalties, respectively.

Seventy CARES Act recipients had been involved in cases that included criminal charges. Of these, 33 of the defendants were large companies, which paid total penalties of $3 billion. The 37 smaller defendants paid $47 million.

While the bulk of CARES Act spending comes in the form of grants and loans, the Federal Reserve is also seeking to prop up the commercial credit market by purchasing corporate bonds, especially those issued by Fortune 500 and Global 500 corporations. The corporations whose bonds have been purchased by the Fed account for more than $100 billion in penalties over the past decade. Because the purchases, which averaged about $3 million per company, are small in comparison to the size of these corporations, we decided not to include the associated penalties in the main analysis of the report.

The revelation that tens of thousands of CARES Act recipients have records of misconduct—including some cases of a criminal nature—raises serious questions about how the aid was distributed. It appears that little screening was done by federal agencies before awarding grants and loans, partly because there were no strict eligibility requirements written into the CARES Act. In some programs the money was apportioned by formula rather than choosing some recipients over others.

In the Paycheck Protection Program there was an application process, but it was handled by banks – which received commissions for their efforts – rather than the Small Business Administration. The application form required business owners to state whether they personally had been convicted or pled guilty to felonies such as fraud and bribery, while for the companies themselves the only issue seemed to be whether they had been debarred by a federal agency.

While little can be done about aid awards that were technically legal, there are steps the federal government could take with regard with two categories of recipients. The first consists of those companies and non-profits which were accused of defrauding the federal government and which paid civil penalties (usually through a settlement) for False Claims Act violations. The other category consists of those involved in cases that were serious enough to be brought with criminal charges.

Given that companies involved in FCA cases are usually allowed to continue doing business with the federal government after paying their penalty, it would be difficult to debar them from future covid stimulus programs. These companies should, however, be subject to additional scrutiny to ensure they do not resume their fraudulent behavior while receiving grants and loans.

The most compelling case for excluding a group of companies from participation in future aid programs concerns those with a history of criminal misconduct. The PPP provision dealing with corrupt business owners should be applied to businesses themselves, especially when the firms involved are larger entities. Doing so would protect taxpayer funds and serve as a deterrent against future corporate criminality.

Crime Without Real Punishment

The absurdity of the corporate system of justice was on full view this week when the chief executive of Pacific Gas & Electric stood in a California courtroom and pled guilty to 84 counts of manslaughter in connection with a 2018 forest fire blamed on the utility’s faulty maintenance of transmission lines.

The CEO, Bill Johnson, was not personally pleading guilty to the crimes. He was appearing as a representative of the corporation, which was charged with the offenses and which agreed to pay the statutory maximum monetary penalty of $3.48 million—or around $40,000 per victim.

Since no executive of the company was charged and since a corporation cannot be put behind bars, no one is paying a real penalty in this case. That, unfortunately, is the norm for almost all matters of corporate misconduct.

Usually, however, a hefty monetary penalty takes the place of imprisonment. PG&E is not even facing that limited form of punishment to a meaningful degree in the immediate case, though it was separately pressured to create a $13 billion fund to compensate victims of the Camp Fire.

It is difficult to see the PG&E case as anything more than a symbolic gesture. It leaves open the question of what would be an appropriate way to deal with egregious corporate misconduct.

For a while it appeared that the utility might face serious consequences after Gov. Gavin Newsom raised the possibility of a state takeover. It now appears Newsom was simply using that threat as leverage to get PG&E to make some changes to its operations. Those changes are unlikely to be adequate for a company with such a poor track record.

Converting PG&E from an investor-owned utility into a customer-owned cooperative, as some California officials suggested, would accomplish much more. Skimping on maintenance to bolster quarterly profits would likely become a thing of the past under such an arrangement.

Such a conversion would in effect be a “death penalty” sentence for the existing PG&E. But instead of putting the company out of business, it would resurrect it in a new, more accountable form.

This is actually not a very radical idea. There are already many community-owned utilities across the United States. They even have their own trade association, the American Public Power Association. There are also many cooperative utilities. Even the federal government is involved through entities such as the Tennessee Valley Authority.

Yet these forms of public power have never represented more than a slice of the industry, which instead has been dominated by large investor-owned utilities whose clout was supposed to be kept in check by strict regulatory oversight, especially at the state level.

PG&E is a prime example of the failure of that oversight. Perhaps it is now time to return to the idea of regarding access to energy, like healthcare, as a right rather than a product.

The Real Law and Order Problem

Donald Trump’s bombastic campaign to restore law and order is focusing on minor crimes like vandalism while allowing much more serious corporate offenses to go unaddressed. Federal agencies such as OSHA are failing to fulfill their regulatory responsibilities, putting lives at risk.

Not only is the government failing to crack down on business miscreants — in some cases it is using tax dollars to give them grants and loans to weather the pandemic-generated economic crisis.

These are not just companies involved in civil infractions but also some that have faced actual criminal charges, which are rarely used against corporations.

So far, the limited information released by the Administration on the recipients of CARES Act assistance has involved two main groups: hospitals and other healthcare providers, and airlines and air cargo companies. Even within this limited universe we can find firms that have been embroiled in criminal cases.

One example is National Air Cargo Group, which recently received a grant of more than $15 million through the Payroll Support Program.  In 2008 the company had to pay $28 million to resolve criminal and civil allegations that it defrauded the Defense Department when billing for air freight services. As part of the resolution, National Air Cargo pled guilty to one count of making a material misstatement to the federal government and paid more than $16 million in criminal fines and restitution (the rest of the penalty total involved the civil portion of the case).

Among the healthcare providers there is the case of WakeMed Health & Hospitals, which is receiving more than $22 million from the CARES Act Provider Relief Fund. In 2012 it had to pay $8 million to settle criminal and civil allegations that it used more costly in-patient rates when billing Medicare for services that were actually performed on an out-patient basis. The non-profit health system was offered a deferred prosecution agreement but it had to admit to the wrongdoing.

Criminal cases can also be found among the larger corporations receiving covid-related aid. Take the case of the for-profit hospital chain Tenet Healthcare, which is getting more than $300 million from the Provider Relief Fund. In 2016 Tenet and two of its subsidiaries had to pay more than half a billion dollars to resolve criminal charges and civil claims relating to a scheme to defraud the federal government and to pay kickbacks in exchange for patient referrals. Tenet got a non-prosecution agreement while the subsidiaries pled guilty to conspiracy to defraud the United States and paying health care kickbacks and bribes in violation of the Anti-Kickback Statute.

In other words, the federal government is currently paying out hundreds of millions of dollars in aid to companies that have been implicated in criminal schemes to cheat that very same government.

The most odious abuses in the American justice system involve disparate treatment based on race, but there are also serious flaws in the way corporate offenders can so easily buy their way out of serious legal jeopardy. Allowing those offenders to receive federal aid is compounding the abuse.

Justice Deferred at Wells Fargo

In finally resolving its investigation of Wells Fargo for a brazen scheme to bilk customers through the creation of millions of sham fee-generating accounts, the Trump/Barr Justice Department employed some tough language but administered what amounted to a slap on the wrist.

DOJ issued a press release quoting Deputy Assistant Attorney General Michael Granston as saying that the settlement “holds Wells Fargo accountable for tolerating fraudulent conduct that is remarkable both for its duration and scope.” The release was accompanied by a 16-page summary of the bank’s abuses, including the adoption of “onerous sales goals and accompanying management pressure [that] led thousands of its employees to engage in: (1) unlawful conduct to attain sales through fraud, identity theft, and the falsification of bank records, and (2) unethical practices to sell products of no or low value to the customer, while believing that the customer did not actually need the account and was not going to use the account.”

The document states that senior Wells executives were well aware of the unlawful behavior yet continued to ratchet up the sales pressure on employees.

This recitation echoes the content of a 100-page notice issued earlier by Wells’ primary regulator, the Office of the Comptroller of the Currency. While the OCC imposed substantial financial penalties against several former executives of the bank, DOJ has not charged any individuals.

Justice imposed a $3 billion monetary penalty on Wells, which resolves criminal issues such as false bank records and identity theft as well as civil issues under the Financial Institutions Reform, Recovery and Enforcement Act and securities violations that may be brought by the SEC. That penalty is not insignificant but it will not be too much of a burden for a bank whose profits last year exceeded $19 billion.

Moreover, the impact of the criminal portion of the case was diminished by the inclusion of a deferred prosecution agreement rather than the filing of any actual charges. This overused gimmick (like its evil twin, the non-prosecution agreement) allows DOJ to give the impression it is being tough with corporate bad actors while actually failing to do so.

In its press release on the Wells case, DOJ tries to justify the use of the DPA by noting factors such as the bank’s cooperation with the investigation. Yet it also cites “prior settlements in a series of regulatory and civil actions.”

How are the bank’s prior bad acts, which according to Violation Tracker have resulted in more than $17 billion in penalties, an argument for leniency? If anything, they militate against the use of DPA, which was originally meant to provide an incentive for a company caught up in a single case of misconduct to return to the straight and narrow.

Wells Fargo, in fact, was the recipient, via its acquisition Wachovia, of a previous DPA in 2010 for anti-money-laundering deficiencies as well as a 2011 non-prosecution agreement in connection with municipal bond bid-rigging. Those deals do not appear to have much of a beneficial effect on the ethical climate at the bank.

Allowing Wells to once again evade true criminal responsibility is sending the wrong signal to a corporation whose conduct was so pernicious, both in cheating its customers and in coercing lower-level employees to participate in the massive fraud.

Behavior like this calls out for tougher penalties. In 2018 the Federal Reserve took a step in that direction by barring Wells from growing any larger until it cleaned up its business practices. The agency also announced that the bank had been pressured to replace four members of its board of directors.

Meanwhile, the Justice Department continues to rely on prosecutorial approaches that have done little to stem the ongoing wave of corporate criminality.

The Belated Crackdown on Wells Fargo

It took three years but a leading federal bank regulator has finally gotten tough with probably the most lawless large financial institution in the country.

The Office of the Comptroller of the Currency, an arm of the Treasury Department, recently took action against the former chief executive of Wells Fargo in connection with the scandal in which the bank pressured employees to create bogus accounts that extracted millions of dollars in fees from unsuspecting customers.

Many observers were surprised that the OCC, not known for aggressive action, fined John Stumpf $17.5 million – the largest penalty it has ever imposed on an individual – and banned him for life from the banking industry. The agency also penalized two other former senior officials at Wells Fargo and charged five others. Among those five is Carrie Tolstedt, the former head of retail banking at Wells, against whom the OCC is seeking a penalty of $25 million, substantially more than what Stumpf agreed to pay.

OCC’s belated severity may have something to do with the fact that the agency’s posture toward Wells is the subject of a pending investigation by the Treasury inspector general. That inquiry will likely address the failure of the agency to pursue complaints it had received about abusive practices at Wells long before the sham-account scandal erupted in 2016. The agency admitted this lapse in an unflattering report about its conduct released in 2017.

Along with the announcement of its charges against Tolstedt and the others, the OCC released a 100-page Notice which reads like an indictment. It argues that for more than a decade the bank maintained a business model that pressured employees to engage in “serious misconduct” by imposing “intentionally unreasonable sales goals” and “fostered an atmosphere that perpetuated improper and illegal conduct.”

The document relates in detail how that pressure worked to the detriment both of the customers who were being defrauded and the bank’s lower level employees. Those employees were turned into accomplices in a corrupt scheme described by the document as “immense” in magnitude.

Also contained in the document are indications that Wells managers were seeking to cover up the wrongdoing. They pretended to monitor improper conduct by lower-level employees but were far from aggressive in that effort. The document notes that the bank’s Head of Corporate Investigations testified before the OCC that there was nearly a 100% chance an employee’s boss would know if she failed to meet her sales goals, but the chances were very small that an employee would be caught for issuing an unauthorized product or service. Those employees clearly got the message that if they wanted to keep their jobs they had to go along with the scheme.

Unfortunately, the document is part of a civil proceeding when it should really be part of a criminal case against Wells and those who were running it. The shocking misconduct outlined by the OCC belongs in an indictment brought under the Racketeer Influenced and Corrupt Organizations Act.

There are reports that the Justice Department is pursuing a criminal investigation of Wells, but it is hard to be confident that Bill Barr’s DOJ will do the right thing.