Justice Dept. encourages prosecutions of corporate execs

A large U.S. flag hangs on the facade of the New York Stock Exchange in New York Sept. 3, 2015.

Reuters/Lucas Jackson

WASHINGTON -- Despite challenges in bringing such cases, the Justice Department is renewing its commitment to prosecuting corporate executives for financial misdeeds, Deputy Attorney General Sally Yates said Thursday.

In a warning shot to Wall Street, Yates unveiled new policies to guide federal prosecutors in bringing more criminal cases against individuals. She also acknowledged that the Justice Department has, at times, struggled to hold executives accountable for fraud that occurs at their companies.

"Crime is crime. And it is our obligation at the Justice Department to ensure that we are holding lawbreakers accountable regardless of whether they commit their crimes on the street corner or in the boardroom," Yates said at New York University's law school.

"Americans should never believe, even incorrectly, that one's criminal activity will go unpunished simply because it was committed on behalf of a corporation."

The new policies come amid persistent criticism that the department, even while negotiating multi-billion-dollar settlements with large banks, has not been aggressive enough in prosecuting individuals for financial misconduct - including after the mortgage crisis that devastated the U.S. economy.

Some of the directives already are in practice, and it's not clear whether they will actually result in additional prosecutions. But taken together, the policies are designed to put the government in a stronger bargaining posture in corporate fraud investigations and to reduce leverage companies have in shielding individual executives.

Perhaps the biggest change mandates that companies that want credit for cooperating with the government must turn over evidence of wrongdoing against specific individuals. Previously, companies could be credited for disclosing improper practices at the corporate level even if they didn't identify individuals suspected of wrongdoing.

"It's all or nothing. No more picking and choosing what gets disclosed," Yates said.

The department also is directing its civil and criminal lawyers to work together on corporate investigations and to begin with a focus on individuals. The department will generally not agree in corporate settlements to shield individuals from criminal or civil liability.

The guidance, issued months into the tenure of Attorney General Loretta Lynch, acknowledges the difficulties prosecutors have had in making cases against executives. Those include identifying people who had knowledge of the crime and involvement in it, gathering the cooperation and testimony of witnesses overseas and reconstructing a complicated paper trail.

"Without an inside cooperating witness, preferably one identified early enough to wear a wire, investigators are left to reconstruct what happened based on a painstaking review of corporate documents, looking for a smoking gun that most financial criminals are far too savvy to leave behind," Yates said.

Still, the policy shift appears aimed at turning the page from some of the criticism that dogged her predecessor, Eric Holder, in the aftermath of the worst economic downturn since the Great Depression.

Public advocacy groups and other watchdogs have long expressed frustration that the Justice Department didn't do more to hold executives accountable for the mortgage crisis. The department at least partially sought to address those concerns in the last two years with a series of multi-billion-dollar settlements with Citigroup, JPMorgan Chase and Bank of America.

The department's signature criminal case against a financial institution in the last year or so, an $8.9 billion penalty against French bank BNP Paribas for sanctions violations, did not result in criminal charges against individuals.