DOJ’s New Strategy for Dealing with White Collar Fraud


Is the federal government really getting tougher on white-collar crime? Faced with criticism for not holding big banks and their senior executives accountable for their behavior leading up to the financial crisis, the U.S. Department of Justice (“DOJ”), which prosecutes federal crime cases, is developing a new model for dealing with alleged financial crimes perpetrated by big banks. The new model involves pressuring the banks’ affiliates/subsidiaries to plead guilty to criminal violations instead of the bank being fined and promising not to violate the law in the future.

This strategy was a part of recent settlements with UBS and the Royal Bank of Scotland. Those banks were charged with manipulating and falsifying the LIBOR rate, which underlies most consumer interest rates, in order to juice up their profits (“Prosecutors Shifting Strategy, Build New Wall Street Cases,” by Ben Protess, The New York Times).  What the DOJ has done so far, however, is extract guilty pleas from foreign subsidiaries of big banks (where apparently most of the collusion and manipulation occurred).  So far, U.S. divisions of such banks, as well as senior executives, appear not to have been prosecuted or entered guilty pleas.

Authorities believe that more than twelve banks falsified LIBOR rates and other interest rates. For example, Citigroup’s Japanese affiliate is believed to have colluded with other banks in a far-reaching rate manipulation scheme, and prosecutors reportedly have Citigroup under their microscope.

Prosecutors should “do more to ensure that this type of behavior is stopped, and that banks and their executives who manipulate markets are held accountable,” Senator Carl Levin was quoted as saying.  Prosecution of individual senior officers does not appear to be a part of the DOJ’s new strategy, at least so far.

The DOJ previously did not press banks for guilty pleas because there was a fear that it would cause the bank to fail and have a domino effect on the economy.  Bank regulators are expected to resurrect such warnings, as is Wall Street itself, in responding to the DOJ’s new strategy.  An attorney for Deutsche Bank apparently told The New York Times that Wall Street is preparing to challenge the DOJ over its change of policy in pressing for guilty pleas and (presumably) going to trial, rather than imposing the traditional wrist-slap fine and deferred prosecution agreement, which suspends criminal charges against banks in exchange for a promise to refrain from committing further violations.

“Extracting a guilty plea from a wholly-owned subsidiary finally enables the Justice Department to look tough on financial institutions while sparing them from the corporate death penalty,” one former prosecutor, who is now a white-collar crime defense attorney, was quoted as saying.

Page Perry is an Atlanta-based law firm with over 150 years of collective experience maintaining integrity in the investment markets and protecting investor rights.