Too Big to Jail? Event Explores Corporate Prosecutions in America

The number of out-of-court deals in federal charges of corporate crimes has soared to record-setting highs, where major companies pay large fines for criminal wrongdoing but no one goes to jail. Brandon Garrett, the Justice Thurgood Marshall Distinguished Professor of Law at the University of Virginia School of Law, delved into the complex deals that take place between the U.S. justice system and the corporate world in a standing-room-only event hosted by the University of Maryland’s Center for the Study of Business Ethics, Regulation and Crime (C-BERC), a joint center of the College of Behavioral and Social Sciences and the Robert H. Smith School of Business.

Garrett’s talk was based on his book, “Too Big to Jail; How Prosecutors Compromise With Corporations,” and was the inaugural event in C-BERC’s new Fishlinger Family Lecture series. The lecture series is just one activity made possible by the generous support from a family where father Bill and son Matt, both graduates from the College of Behavioral and Social Science, are committed to sustaining and exploring issues related to business ethics and inspiring the next generation of entrepreneurs and business leaders. Matt Fishlinger attended the event.

Garrett detailed the points in his book through the transgressions at HSBC, the London-based banking behemoth called under scrutiny in 2012 by the U.S. Senate for money-laundering practices. HSBC struck a deal with federal prosecutors to a pay $1.256 billion fine and submit to five years of monitoring, but avoided any criminal prosecutions of individuals. The case is a high-profile example that illustrates the rise of deferred prosecution agreements, where companies stay out of the courtroom and executives stay out of jail in exchange for hefty penalty payments, often shouldered by stockholders.

Terms of the deals include provisions that companies must comply with federal monitoring to ensure they have cleaned up their acts. But Garrett says this is often not effective.

“Once a case like this is settled, prosecutors don’t have time to follow up and check in on compliance. Many of the agreements simply state the company shall adopt ‘appropriate due diligence’ or ‘effective compliance,’ he said.

The topic is a hot one in bi-partisan circles, with many lawmakers in Congress calling for reforms. It continues to be the subject of congressional hearings and news stories – earlier this week with Wells Fargo’s CEO berated by a Senate panel for a massive sales scam and the Justice Department demanding Deutsche Bank pay a $14 billion fine for mishandling mortgage-based securities during the financial crisis.

Garrett’s solution to keep firms on the right side of the law – and one many have advocated – is that more individuals at large companies should be criminally prosecuted for wrongdoings. As he pointed out, no individuals were charged in the HSBC money-laundering case. In addition to prosecuting more individuals, Garrett said corporate crimes could be punished with more convictions, judge-supervised settlements, more deterrent fines, better auditing and monitor compliance, and clear consequences for recidivism.

He says he will continue to study the issue to determine what compliance incentives work. And he – and everyone else – will be watching and waiting to see how the November presidential election plays out and how a new administration tackles the issues of corporate compliance and prosecutions.

Garrett’s remarks were followed by a lively panel discussion, moderated by C-BERC Director Sally Simpson, professor of Criminology and Criminal Justice. Along with Garrett, panelists included Cindy Alexander, research fellow in the Law and Economics Center at George Mason University; Bruce Dubinsky, managing director at law firm Duff & Phelps; Michael Greenberger, founder and director of the University of Maryland Center for Health and Homeland Security and a professor at the University of Maryland Francis King Carey School of Law; and Steve Kroll, senior advisor in the Office of Research and Analysis at the Public Company Accounting Oversight Board. They covered why individuals often aren’t prosecuted for corporate crimes, what needs to change to see a decrease in these crimes, and how universities should be teaching business ethics to prevent crimes.

- Carrie Handwerker, Office of Marketing Communications