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Department of Justice Increasingly Relies on Settlements Instead of Criminal Charges for Corporate Wrongdoing, New Public Citizen Report Shows

July 8, 2014

Department of Justice Increasingly Relies on Settlements Instead of Criminal Charges for Corporate Wrongdoing, New Public Citizen Report Shows

With Financial Institutions, Agency’s Lack of Explanation Indicates Some Banks Are Still ‘Too Big to Fail’

WASHINGTON, D.C. – A non-prosecution agreement against SunTrust Mortgage Inc., announced by the U.S. Department of Justice (DOJ) on the eve of the July 4 holiday weekend, highlights the increased use of such agreements by the agency and the need for it to explain why it chooses not to criminally prosecute certain bad actors, Public Citizen said today.

The agency has dramatically escalated its reliance on deferred and non-prosecution agreements – instead of criminal prosecutions – to address criminal wrongdoing by a wide variety of corporate bad actors, a new Public Citizen analysis finds. When it comes to financial institutions – the sector Public Citizen delved into – the agency has not explained why it hasn’t pursued criminal charges, leaving many to conclude that the government deems some institutions “too big to fail.”

The analysis – Justice Deferred: The Use of Deferred and Non-Prosecution Agreements in the Age of ‘Too Big To Jail’ – examines the DOJ’s recent track record of using so-called “deferred” or “non-prosecution” agreements (DPAs and NPAs) in cases of criminal wrongdoing.

From 2000 through 2004, the agency entered into an average of about four agreements each year, with eight agreements in 2004, according to information compiled by the law firm Gibson, Dunn & Crutcher LLP. Each subsequent year, however, the DOJ averaged 28 agreements per year, with only two years that saw fewer than 20 agreements.

Corporations that entered into agreements with the DOJ in 2013 ranged from the United Parcel Service and Ralph Lauren to Archer Daniels Midland and Las Vegas Sands Corp.

In 2012, when the DOJ entered into a deferred prosecution agreement with HSBC for money laundering violations, Attorney General Eric Holder said the agency didn’t press criminal charges because doing so with large institutions could harm the economy. He later backtracked, saying that no banks are “too big to jail,” but the department’s continued reliance on DPAs suggests otherwise, Public Citizen says.

In examining instances in which the DOJ used DPAs and NPAs instead of criminal charges to address criminal activity at large financial institutions – all of which received substantial government assistance during the recent global financial crisis – Public Citizen found a lack of transparency as to whether the agency considered the size of the financial institutions in deciding to forego criminal charges and, if so, to what degree that mattered.

“The increasing dependence of the DOJ on DPAs and NPAs is startling,” said Amit Narang, lead author of the report and regulatory policy advocate for Public Citizen’s Congress Watch division. “Without any explanation from the DOJ as to why these agreements are more appropriate than criminal charges, the public can only assume that a financial institution’s size played a critical role.”

Recent guilty pleas by Credit Suisse and BNP Paribas are exceptions to the rule. Neither case involved frauds connected to the 2008 financial crisis. And no major bank or bank official has ever faced a criminal charge from that recession.

Further, the DOJ engaged in extensive conversations with regulators on the Credit Suisse and BNP cases in an apparent effort to limit the harm to the banks, which does not happen with small institutions whose demise likely would not cause systemic repercussions.

“Not prosecuting big banks that have engaged in criminal activity has given rise to the perception these financial institutions are ‘too big to jail,’ ” said Lisa Gilbert, director of Public Citizen’s Congress Watch division. “These softball prosecutions further highlight the real need to increase transparency on DOJ processes and decision-making when it comes to large financial institutions.”

Read the analysis.