US Attorneys Marshall Miller (R), William Nardini (R) and Christine Mays attend a press conference on February 11, 2014 in Rome.
Tony Gentile | Reuters
Banks and other corporations that report possible employee crimes to the government will receive lenient terms instead of waiting to be discovered, according to a Justice Department official.
Assistant Deputy Attorney General Marshall Miller said Tuesday at a banking conference in Maryland that the DOJ recently overhauled its approach to corporate criminal enforcement to encourage companies to root out and expose their wrongdoing.
“When there is indecision, we want companies to step up,” Miller told bank attorneys and compliance managers attending the meeting. “When companies do this, they can clearly and predictably expect better results.”
With trillions of dollars flowing around the world daily, banks have a relatively high burden to meet anti-money laundering and other legal and regulatory requirements.
But there is a long track record of failures, often due to dishonest employees or bad practices.
According to a 2018 KBW report, the industry has paid more than $200 billion in fines since the 2008 financial crisis, mostly for its role in the mortgage crisis. Traders and bankers have also been accused of manipulating benchmark rates, currencies and precious metals markets, stealing billions of dollars from developing countries and laundering money for drug lords and dictators.
The carrot that law enforcement officials have dangled to the corporate world includes a promise that companies that promptly self-report wrongdoing will not be forced to plead guilty “absent aggravating factors,” Miller said. He said that if they fully cooperate and implement internal compliance programs, they will avoid appointing internal supervisors, called monitors.
Remember Arthur Andersen?
The first incentive carries an additional burden for financial firms, as guilty pleas can lead to catastrophic problems for highly regulated institutions; they may lose their business licenses or the ability to manage client funds if they have not negotiated regulatory compliance.
“The message every corporation needs to hear is that the best way to avoid a guilty plea — for some companies, the only way — is to promptly self-report and cooperate when a violation is discovered,” Miller said.
Officials have generally tried to avoid bankrupting companies with enforcement actions since the 2002 indictment of accounting firm Arthur Andersen, which led to the loss of 28,000 jobs.
But that has meant that over the past decade, banks and other companies have typically entered into deferred prosecution agreements or other agreements with fines when wrongdoing is discovered. For example, JPMorgan Chase Bernie Madoff entered the DPA for his role in the pyramid scheme and the precious metals trading scandal, among other failures.
Even in cases where problems aren’t immediately found, the Justice Department gives credit to managers who volunteer information to authorities, Miller said. He indicated that he was recently convicted Uber‘s old security officer as an example of existing methods for obstructing justice.
“When Uber’s new CEO came on board and learned about the CSO’s behavior, the company decided to self-disclose all the facts about the cyber incident and the CSO’s government-obstructing behavior,” he said. The move resulted in a deferred plea agreement.
He said companies would also be looked at favorably to create compensation programs that allow bonuses to be redeemed.
The change in the department’s approach comes after a year-long review of its processes, Miller said.
Miller also rattled off a list of recent cryptocurrency-related enforcement actions, hinting that the agency is looking at potential manipulation of digital asset markets. FTX’s recent bankruptcy has raised questions about whether founder Sam Bankman-Fried will face criminal charges.
“The Department has been closely monitoring the extreme volatility in the digital asset market over the past year,” he said, adding a famous quote. Berkshire HathawayWarren Buffett on spotting wrongdoing or taking foolish risks “when the fight’s on.”
“For now, I will say that nude swimmers are very concerned because the department is recording,” Miller said.
-With a report from CNBC’s Dan Mangan