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Should we consider some banks recidivist white-collar criminals?

If there were a “three strikes” law for banks, JPMorgan Chase would have probably have been out long ago. In the last decade alone, the bank has forked over around $3 billion in fines, fees, forfeitures and other penalties to federal agencies. The allegations against JPMorgan have involved an array of front-page financial scandals:

  • $135 million after the Enron accounting fraud
  • $672 million for allegedly exchanging money for municipal bond business in Alabama
  • $153 million for allegedly misleading investors about collateralized mortgage securities
  • $410 million for alleged manipulation of energy markets
  • $920 million, so far, in regards to the “London Whale” fraud

Despite those enormous penalties, allegations of fraud, corruption and other white collar crimes involving JPMorgan just keep coming. Settlement negotiations are underway right now regarding the 2008 toxic mortgage-backed securities scandal. An investigation is now underway into whether the bank violated the Foreign Corrupt Practices Act by hiring relatives of Asian government officials. Another is considering whether JPMorgan manipulated the London banking rate called Libor.

Even if there were a “three strikes” law for crimes committed by organizations, however, it wouldn’t matter in this case. The JPMorgan cases have generally been civil enforcement actions, not criminal prosecutions, and civil actions don’t result in convictions or “strikes.”

A New York Times securities law blogger and law professor, who has served as both a Justice Department prosecutor and an SEC enforcement attorney, recently looked into the issue in detail. Federal law enforcement is apparently plagued with legal challenges when dealing with corporate white collar crime.

For instance, suppose JPMorgan had been criminally prosecuted and convicted in all the cases listed above. Under the federal sentencing guidelines, convictions for similar misconduct by the same company in the past 10 years would drive up the penalty, just as prior convictions do for individuals.

However, JPMorgan is a giant conglomerate of numerous different sub-organizations that handle a variety of businesses. It has more than 260,000 employees in 60 countries. Should misconduct by one JPMorgan line be considered in the penalty for a completely different group’s conviction, if none of the same people were involved?

A “three strikes” law for mega-corporations may not be realistic. That said, for our laws to work, the public, the industry, and the accused must all be able to understand and predict what criminal behavior will be prosecuted, and that doesn’t seem to be the case now.

Source: The New York Times’ DealBook blog, “No Limit on Strikes for JPMorgan Chase,” Peter J. Henning, Sept. 30, 2013

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