The Chickenshit club

Jesse Eisinger

Prosecutors are reined in by politically appointed bosses, bosses in banking whose money put them in power.

After the savings and loan scandals of the 1980s, when hundreds of small banks across the country failed due to reckless real estate loans, the Department of Justice prosecuted over a thousand people, including top executives at many of the largest failed banks.

By contrast, after the 2008 financial crisis, the government failed. In response to the worst calamity to hit capital markets and the global economy since the Great Depression, the government did not charge any top bankers. The public was furious. The bank bailouts and lack of consequences for bankers radicalized both ends of the political spectrum and gave rise to two of the most potent social movements of our time: the Tea Party and Occupy Wall Street. Anger about the lack of Wall Street accountability seeded disenchantment with Obama.

The Republican platform called for breaking up the big banks by returning to the Glass-Steagall Act, the Depression-era law that split commercial banking from investment banking, a reflection of resentment about the government bailout of the financial system as bankers wriggled free.

After the post-Nasdaq-bubble prosecutions of the early 2000s, the Justice Department began to suffer fiascos, losses in court, damning acts of prosecutorial abuse, and years of intense lobbying and pressure from corporations and the defense bar to ease up.

Meanwhile, judges all over the country embarked on newly generous interpretations of the law, broadening corporate and executive rights and privileges, narrowing white-collar criminal statutes, and repeatedly overturning federal prosecutors in notable white-collar cases. The Supreme Court has expanded the rights of corporations.

From 2002 through the fall of 2016, the Justice Department entered into 419 such settlements, called deferred prosecutions and nonprosecution agreements, with corporations. There had been just 18 in the preceding ten years.5 Meanwhile, corporate prosecutions fell. The Justice Department prosecuted 237 companies in 2014, 29 percent below the number in 2004.6 These prosecutions tended to be of tiny, inconsequential companies.

In recent years, Pfizer, the pharmaceutical behemoth, has suffered every form of government crackdown that prosecutors can imagine, short of the ultimate sanction of being put out of business. Pfizer and subsidiaries have had two convictions, two deferred prosecution agreements, and a nonprosecution agreement.

Investigations and prosecutions of people are much more difficult than going after corporations.

Investigations of individuals consume more time. Investigators must work slowly, first going after lower-level employees and then flipping them against their bosses. To their bosses at the Department of Justice, prosecutors who pursue individuals appear less productive. Investigating top executives at large corporations is more difficult because they insulate themselves from day-to-day decision making. Prosecutors find it harder to accumulate the evidence necessary to prove their cases beyond a reasonable doubt. And individuals have greater incentive to fight prosecutors.

Defaulting to a settlement with a corporation without prosecuting individuals corrodes the rule of law. Settlement culture validates the critiques of both sides. Companies argue that the government has extorted them into forking over money for unproven crimes. They say they cannot contest allegations because regulators hold the power of life or death over them. The public, meanwhile, sees corporations writing checks to make charges disappear.