It was known to a few of us in the room in particular for his previous work,
which has published a book called Convicting the Innocent Where Criminal Prosecutions Go Wrong.
And he's not going to talk about that today.
However, you are interested in either the science of sort of forensic DNA,
if you're interested in what goes wrong in the process, if you're interested in the death penalty.
I do strongly recommend you read that book at the very least, if not by it, because it is a wonderful book.
It's an award winning book as well. And it's it's a well-thumbed book on my bookshelf.
Today, he's going to talk about the new area of research that he's moved on to,
which is very well summed up in this wonderful title of his brand new book, Too Big to Jail.
And it's about how prosecutors compromise and cooperate, how prosecutors compromise with corporations.
And so that's the topic of his talk today, as usual, will be his personal talk for about an hour.
We're going to have 30 minutes for Q&A.
And then I've seen the sunglasses in the corner and I've been assured that there will be someone coming in at about 5:00.
So if you don't get a chance in the first few minutes at the end of this talk to ask questions or make comments.
Do you hang around for a glass of wine and follow up on those points that are asking at all?
So over to you, Brandon. Welcome to thank you for coming.
Thank you. Thank you so much. It's a it's a very, very special treat to be here.
And I don't think if it wasn't for for for Caroline and for Roger, I mean,
telling me about the possibility of coming to Oxford, I don't know that I would be here.
And it's really a treat for me, especially since I've only just arrived a couple of weeks ago,
for me to start meeting some of you who teach criminal law, criminology, criminal justice related courses around Oxford.
I will work with the Criminology Centre and I'm very,
very excited to meet some of you and hope that although I'll be doing a lot of the talking for the next 45 minutes or an hour about the law,
I have a chance to talk much more over the next coming.
So I didn't actually say, did I? Of course, the most obvious thing is he is going to be around for the full part of this thing.
So I completely forgot to say that. So not just to today, but since I will be around for several months and can talk to you more about other things.
My goal today is to give you a kind of a walking tour of of this corporate crime book that I finished just a few months ago.
Although it's very hard to remember what one writes in a book once it's out,
I'm now working on cases involving actual people sentenced to death and things like that.
So I'm back to the world that I had been in.
What attracted me to the world of corporate prosecutions is in some ways summed up by the title,
and it is that artificial persons can in a legal way and and maybe in other practical ways,
be responsible for some of the most significant and serious crimes imaginable.
I'd like to use a particular case and walk you through some of it to give you
a sense of what happens in corporate prosecutions today in the United States.
The approach towards corporate prosecutions in the United States is unlike that in any other country in the world,
except to the extent that many countries in including the UK have absolutely adopted in some places whole cloth in the UK,
adopting whole cloth as well. This novel US approach towards taking on a corporate criminality.
So it may be that corporate criminality hasn't changed that much over the last few decades.
The approach of prosecutors absolutely has in ways that are somewhat surprising in some respects quite important in many respects.
And and I have many criticisms of what has happened, although I also admire the hard work that prosecutors do in this area.
Anyway, I thought I would pick a local example for for this talk today, and hopefully this presentation won't make you dizzy.
It does move around a little bit. So this man, Mr. Donald Bagley, had been the head of compliance at some sort of UK bank called HSBC.
I don't know. I guess I've seen signs around town of mom and pop banks.
I have thought about the structural transformation of the bank's compliance function.
I recommended to the group that now is the appropriate time for me and for the bank.
For someone new to serve as the head of Group Compliance,
I have agreed to work with the bank senior management towards an orderly transition of this important role.
Thank you for your time. I welcome this opportunity to answer any questions.
So, so I quit a lot of questions. How disappointing.
If I did that to you, that would be a horrible thing to do.
But this this is before the permanent subcommittee of investigations at the U.S. Senate, chaired at the time.
He has since retired from the Senate,
which will do terrible things for both the enforcement and the study of corporate crime started at the time by Carl Levin,
who took these investigations incredibly seriously in some of the reports that that committee produced,
told us far more about some serious corporate crimes than we ever learned.
As to the work of prosecutors. Since the likes of HSBC, they like to settle cases, whatever the type of litigation quietly.
Well, because of this subcommittee investigation for the resolution of this case could not be quiet because that
committee subpoenaed millions of pages of documents and they brought people before them to explain themselves.
Now, he had a short explanation. I'm sorry. I quit. And being the head of compliance at HSBC was he was he was leading a group that was
unusually small for a major international bank and apparently of remarkable incompetence.
But but the size was it was a piece of it, too. They had less than 200 people doing compliance around the world across all of HSBC operations.
200 people may sound like a lot for some organisations.
But well, since 2012, when he resigned and since HSBC was prosecuted, they've hired 5 to 10000 people to do compliance at their bank.
And apparently things still need a lot of help. So they had less than 200.
That gives at least a very rough sense of just how shoddy their compliance was.
So maybe they had 199 when he quit, but that didn't exactly address the problem.
He did say he did add on a more positive note that the bank has already learned from these past mistakes and was on a path to becoming a better,
stronger banking institutions. So he didn't just say, I quit.
Any questions? Now, what came out in this investigation?
And frankly, in most of these cases, we don't know this and this level of detail what the company did.
Many of these documents were made public in a lengthy report that you can read online,
and that is on the website of the U.S. Senate Permanent Subcommittee on Investigations,
including amazing emails, which I could do a whole slideshow of just the e-mails in which compliance employees,
some of them, some of them not like him.
His predecessor actually complained quite a bit about how she just couldn't do her job in any meaningful way and was told to be quiet,
stop raising questions, and then finally you're fired. So HSBC has, you know,
an enormous financial institution spread over a remarkable number of countries and functioned
at the time as sort of a loose collection of different banks without strong central oversight.
They committed basically every crime a bank could commit if it really wanted to.
The U.S. passed a collection of criminal laws, regulations to the laws,
all sort of under the heading of the Bank Secrecy Act in the 1970s, which requires that transactions be documented,
that cash transactions of more than $10,000 be documented in particular,
and one isn't allowed to just show up with more than $10,000 in cash at a bank.
That is to combat money laundering.
Separate sanctions laws interact with the Bank Secrecy Act such that transactions that go to countries that face sanctions in the U.S.
Well, money isn't supposed to make its way to those countries. And transactions that are at risk for being directed toward sanctioned countries
are supposed to be red flagged and targeted and shut down in particular ways.
The U.S. Patriot Act passed in the wake of the September 11th attacks,
added to additional criminal and civil provisions to this whole array of banking statutes and transactions that raise the risk
of money flowing to terrorist organisations are also supposed to be red flag and banks are supposed to put a stop to that.
So there are a lot of transactions that banks are supposed to be watching.
They are supposed to be passive conduits for whatever their customers want to do in terms of wiring money across the world.
HSBC apparently wasn't different in large regard to where the money was going and when they bought a mexican subsidiary that apparently had no.
A compliance department to speak of and had been the subject of because Operation Casa Blanca or Casa Blanca in the late nineties,
a huge money laundering sting operation.
And so it was well known that this bank was extremely troubled and was being used by the Mexican drug cartels.
They apparently designed cash packages to fit the specifications of the teller windows of HSBC, Mexico's banks,
because it was the perfect way to do something that they really needed to do, which is move cash back and forth between the U.S. and Mexico.
If you are a drug cartel, that's a big problem. You're dealing in a cash business.
You need to get that money into banks and move it around.
HSBC was the conduit of at least $818 million in drug proceeds were laundered through HSBC in May.
You know, over $15 billion that went back and forth.
And to this day, we don't know to what degree that 15 billion was made up of drug cartel money.
And that was just Mexico. That was just you know, that could be the subject itself of thousands of money laundering prosecutions.
But there were also transactions, hundreds of millions of transactions to basically every sanction regime in the world,
Burma, Cuba and Cuba, not so much anymore. Iran, Libya.
North Korea. Sudan organisations suspected of ties to terrorism transactions involving tens of millions
of dollars were flowing to banks suspected of promoting transactions to terrorists.
So this wasn't just a one criminal investigation. This was potentially hundreds of criminal investigations.
And if an individual in the U.S. is convicted federally of money laundering, well, all one has to have is a high degree of suspicion that money,
say over $10,000 in cash is related to, say, a drug cartel or to a terrorist organisation.
You don't have to the person doesn't have to give you the cash and say, I'm trying to money launder this work for the cartels.
If it's a real estate agent and the customer shows up in a I'm trying to think of what a gold Corvette or a gold Bentley and says,
you know, I'd just like to pay cash. And whereas, you know,
I read a sunglasses and maybe a gold suit and the real estate broker has no actual knowledge that this person is involved in anything criminal.
But figures of like to make the sale, as is a nice commission. I'll take the cash money laundering.
And that real estate agent who may not be intentionally assisting a drug cartel can face just enormous sentences, decades long sentences.
Well, nothing like that happens when a bank is prosecuted.
Financial institutions are never convicted of money laundering.
And the reason why is that a money laundering conviction triggers automatic charter revocation proceedings at the federal level.
The attorney general is actually it's a it's a rare collateral consequence of a conviction that is required for a corporation in the United States.
The attorney general is required to make the recommendation to the Comptroller of the Currency in the Treasury that the bank's charter be revoked.
That would be the end of the bank's operations in the United States.
So HSBC, U.S. would disappear as an entity and lose its charter if it were to be convicted of money laundering.
So instead, it's convicted under the Bank Secrecy Act.
Well, it's not convicted, but it's charged under the Bank Secrecy Act, which doesn't charter revocation would be purely optional.
Same for sanctions violations and some of these other provisions.
And so prosecutors with banks tend to select charges that don't result in the corporate death penalty,
presumably because they don't want to destroy the entire financial institution.
Individuals, no such luck. Now there are separate questions.
Financial institutions are closely regulated.
The Office of the Comptroller of the Currency apparently was doing very loose compliance audits of the bank.
They were actually checking transactions to see where they had gone.
Banks may generate hundreds of thousands of red flagged transactions every year.
And they're supposed to send reports of those transactions to those. It's not clear that those he really has the resources to read any of that stuff.
And of course, there's the question of, well, how about the transactions that they don't fly?
Who reads those? The Carl Levin's committee described in detail how the regulators just basically, if they missed this, then what were they doing?
What are they for? So a separate question was the criminal prosecution that came out of this case the result of really scandalous
failure of the regulators to to put a stop to this before it reached this kind of epidemic proportions?
What HSBC ultimately does, though, is is. A they enter a settlement with prosecutors in the Eastern District of New York.
Actually, the US attorney there at the time was Loretta Lynch, who is the new attorney general.
As in just a few days ago in the U.S. she was she was asked, I think, a very brief question in her confirmation hearing about the HSBC case.
And she said, oh, yes, we're very proud of our work in the case of the deferred prosecution agreement requires some explanation.
And it's a big part of what I talk about in my too big to jail book.
I'll say a little bit more about it later in the talk.
But the procedure is something like this, and I assume that courts in the UK have some procedure like this where if it's a juvenile,
a low level offender, a first time offender, what the prosecutor can do is say, look.
We don't want to charge him out here a first time offender. This is a low level thing to file a case.
If in a year, two years, you stay clean, you pass your drug test, you don't get into any more trouble.
We'll dismiss the case. No charges will be filed. No.
If we catch you again and then you don't get off with a warning.
But we will basically give you the equivalent of a warning this time.
And so the case stays on the docket for for some period of time, a year or two years, three years.
Usually with individuals in six months or a year. And if a person shows good behaviour, good conduct, then the case is dismissed.
There's no criminal record.
The origins in the US were in a Brooklyn plan where the federal prosecutor acted in the same office that brought the HSBC case.
Experimenting with this, they call it a diversion approach diverted from trial,
basically diverted from the regular plea bargaining process to basically out of court deal for a low level offender,
first time drug user or juvenile for the idea of giving corporations and some of the biggest
in terms of money value and maybe social harm biggest cases imaginable that that was a
creative move to use that tool that was designed to let off low level offenders who maybe
shouldn't be considered criminals quite that to extend that to the largest corporations.
That was a big change that really began in 2003 for reasons that I'll talk about a few minutes ago.
What happens in this deferred prosecution agreement? Well, with an individual is just don't do it again.
So good conduct faster drug tests for the next year for a bank, good conduct means something somewhat different.
The agreements themselves are often quite detailed, and this was a particularly detailed one.
HSBC admitted guilt and said, we have absolutely committed Bank Secrecy,
Act violation, sanctions violations, Patriot Act violations, a lot of violations.
We admit it and we accept responsibility.
Acceptance of responsibility is something that one must sort of go through the motions of and a plea agreement that is, you know, I am guilty.
And and I really I feel responsible. It doesn't quite have the same atmospherics as the company's lawyers accepting responsibility in a courtroom,
but the same language is there as if it were a guilty plea.
But here there is no guilty plea. There is no conviction, and there will be no conviction and there will be no criminal conviction,
assuming that the company follows the terms and here is actually a five year agreement.
So if the company fulfils the terms at the end of the five years,
the case will be dismissed from the judge's docket and there will be no criminal record for HSBC.
They agreed to pay an enormous forfeiture, over $1,000,000,000, but $1,000,000,000 fine.
So that's that's totally normal in corporate prosecutions these days. It was not a decade ago.
So somehow billion dollar fines and become the new normal every every year.
There are a few billion dollar cases that if you saw the the movie the banking on the name of the movie, that was about the insider transactions.
Now this is antitrust, the lysine cartel conspiracy is the insider.
Okay. And so it's a late nineties movie.
And that was the era in which antitrust prosecutions exploded in the U.S. That case resulted in like a 30 or $40 million fine,
and that was considered a really big deal, a huge corporate criminal fine.
All of a sudden, you know, the landscape of cartel enforcement radically shifted because a company paid tens of millions of dollars.
But that looks quaint. And in terms of the numbers involved in today's corporate criminal prosecutions and actually, you know, not half, but,
you know, almost 900 million would be paid to the Treasury so that the penalties were shared as between the regulators who.
They sort of prevented this. And the prosecutors.
There were no other payments because there aren't easily identifiable victims when it's money laundering,
violations of sanctions in many of these cases,
payments to victims restitution, as it would be called, plays a big role in it,
where there are victims actually a forfeiture and that money can make its way to victims.
Instead, this money basically went to the US Treasury.
There was a corporate monitor appointed who was supposed to watch over HSBC and report on what changes were being made.
This is a company that, after all, had, you know,
a couple hundred people doing compliance across all the 90 something countries that it had major banks.
And so the company was required to adopt a new compliance program, new anti-money laundering systems.
The company also was cited in the agreement.
It didn't change its leadership because prosecutors told it to,
but it wasn't just the head of compliance that resigned on the Senate floor, although that was more dramatic.
But then there's a new CEO, new chairman, new chief legal officer.
The top leadership of the company really did turn over as a result of this investigation and then the prosecutions that resulted.
Most companies that that get prosecuted for crimes do not change their top leadership like this.
And that's that's unusual in that happens. Sorry that was a term of the it was not a term.
It just happened. The agreement sort of described favourably how this is a company that's turning over a newly if lots of its
leadership had changed the agreement didn't actually require that would be a big deal to the prosecutors.
And so we'll let you we'll let you dismiss that.
We'll dismiss the charges here. But you have to get rid of your CFO that that that would be controversial.
There has been a case where a corporate manager, according to the prosecutor, told the company to fire his.
They did, and that was controversial. The agreements also provided that the company must cooperate.
And it was very strong language. So they said that basically the company and this is standard language,
we accept responsibility and we agree to fully cooperate in any investigations of any individual employees or officers.
We agree to provide prosecutors with access to employees to interview any documents,
e-mails, anything they want going forward, any related investigation.
We agree to fully cooperate.
We don't agree to provide privileged documents or frivolous material, but any relevant material that some people have is real.
We cooperate. And that's that's a significant term to standard in this case.
Just two points ahead of the company's share price bill.
And the second point is that you've got 90 branches all around the world, not all of them subject to jurisdiction resources,
and not all of them are subject, I guess, to U.S. sanctions against those countries that are politicians.
And like some of them, they actually enforce these penalties on Hong Kong or HSBC other.
Yes, the HSBC is not only has a U.S. branch, but is listed on the U.S. exchanges.
And so there is jurisdiction over the parent company in the U.S. and that's enough.
You know, they can certainly they could certainly they can certainly hold the agents accountable of the parent.
That that has been the position of U.S. prosecutors. So far, no court has had a problem with it.
And the idea is that if it's a wholly owned subsidiary, you have jurisdiction over the parent.
You could certainly ask for an entity to control its agents if they're committing crimes.
And so that that hasn't come up in cases like this.
I'll talk about the share price a little bit more later.
But in general, when these settlements are announced, the share price goes up because the company says, you know, we've now put this behind us.
Now, by that time, however, a lot of information has been out there in the market about the fact that the company that was in the investigation,
the fact that prosecutors will consider considering a settlement company,
will have announced we've set aside $2 billion to pay any potential resolution of the cases against us.
And so there isn't this shocking moment when, oh, my God, you know,
HSBC has entered a deferred prosecution agreement and we'll be paying a $1.9 billion fine.
Everyone knows about it. And these fines are also much smaller than they could have been.
And so this $1.9 billion payment under the really it's an alternative sentencing statute.
It's not strictly under the U.S. sentencing guidelines. The company can be fined up to twice the gains for any federal crime.
And if you look at the you know, there are many, many tens of billions of dollars of transactions.
You could there was no attempt to do some calculation as to what kinds of gains to this bank made from all of the business that it received.
You'd have to do some very complicated tracing. There was no effort to ground this find in the profits that HSBC made from the relevant conduct.
And the fine could have been up to twice that amount.
No company ever gets fined up to twice the gains or the losses to victims of their losses to identifiable victims.
The fines are typically a fraction of what they could be under sentencing guidelines.
And so the well, here's the whole agreement, maybe not the most helpful way to to reach an agreement,
but it would be hard to fit them on screen otherwise. But, you know, it talks about the parties in the bank and employees and what they did.
These agreements also tend to have a statement of facts. And so not only does the company accept responsibility for what it did,
but in a less abstract way, the company there's typically a statement describing who did what,
usually employee number one, supervisor number two, they will quote the emails,
look at some picture, at least of what this company was doing, why it was bad.
What was the money laundering like? What were the gross failures of compliance?
Prosecutors want the public to know something at least about why this was a serious case, although it's often they don't name particular supervisors.
It's these are somewhat dry documents.
But there is a story that is told about what the crime was not like, a story that would be told that a criminal trial,
but that no cases go to trial anymore in the US federal courts in a criminal scientist, it's, it's rare for any criminal case to go to trial.
About 5% of federal cases go to trial in the U.S. More go to trial and the most serious criminal cases.
Very few corporations take their case to trial.
There have been, you know, less than two dozen corporations that have had a criminal trial in the last 15 years.
HSBC was not about to have a trial. Just to give a sense of how big these cases are.
The. So you notice a lot of 2012, 2014, 2009.
Many of the record penalties paid by banks have been in just the last few years.
All right. Correct. And this is sort of one point. For a range of different crimes.
A lot of them are sanctions cases, some involving tax, Swiss banking cases.
This being the case as Mr. X and actually this the judge delayed sentencing
for some reason to allow for further submissions of the New York State Court.
Part of it was just sentenced on May 1st to tomorrow.
BNP will likely be sentenced tomorrow and when it is assuming the sentencing is completed tomorrow and there isn't a further delay,
the largest ever criminal fine of any kind in the US will occur formally tomorrow in a courtroom in the southern district of New York.
And so there's lots of French interest and corporate prosecutions in the United States these days because the big state bank,
BNP Paribas about to pay just an enormous 5% to read out.
Because I'm guessing because it's a it's about it's about $9 billion.
So and BNP and people in France are saying, you know, come on, HSBC did things all across the world,
not just money laundering and sanctions violations, but terrorism.
They did everything. Why do they only get, you know, 2 billion or paying 9 billion?
All kinds of questions about how prosecutors exercise their discretion in this area.
These are all negotiated agreements with prosecutors. D.A. is different, though, because that bank pleaded guilty.
And so there is a judge. And tomorrow the judge could say, I'm not going to approve this clearly.
But HSBC, who is largely out of court, the company will not be convicted.
It will not plead guilty. But to answer this deferred prosecution.
Here's something which shows in a little bit better sort of what the trend is in terms of money.
Although I begin my book by describing how there's been this explosion of corporate criminal funds.
I spend a lot of the book talking about why we shouldn't be overly impressed with just the numbers in these cases.
One reason we shouldn't be overly impressed with just the numbers in this case is that and
it may there actually have not been more cases brought against corporations since 2001.
In fact, slightly fewer cases are have been brought in recent years against corporations.
Slightly fewer cases have been brought against public corporations.
And in any given year, the vast bulk of the fines which make this look really impressive are brought in a handful of cases.
And so 2003 looks like a remarkable year, the biggest year in the whole group.
But most of that that big red thing there, that's the BP settlement.
That's one case since the BP settlement for the Gulf spill.
Now the biggest environmental disaster in U.S. history. I wouldn't want to trivialise the the costs of that and actually the payments to victims.
And that was a $20 billion fund that they set up because Obama told them to that was much bigger than this.
And that what they eventually pay in the civil case, much more of that than the, you know, $4 billion that had come up this one case, you know, 2009.
That big pharmaceutical case, this one case that was the first billion dollars settlement of any criminal case in the United States with Pfizer.
Since then, there have been GlaxoSmithKline, lots of big pharma cases.
And so in any given year, you know, half a dozen blockbuster cases,
sometimes there's two or three blockbuster cases that are responsible for the vast bulk of this is money.
Yes. Look, to me, I wasn't quite clear if I read it right, but the list of banks, almost all of them seem to be farmers.
Yes, I'll talk about that in a second. So.
Really in a second for foreign companies, not just banks pay far larger fines for large.
In fact, many times larger crimes. And there are a number of different potential explanations for this.
It could be that companies based outside the US don't care as much about U.S. law, which would be understandable.
Companies in many countries may be understandably unfamiliar with the very notion of corporate criminal liability.
You know, when Siemens was prosecuted in the United States for what was and still is the largest bribery prosecution of all time in Germany,
they're quite metaphysically opposed to the very notion of corporate criminal.
And then the concept made no sense to companies like BNP Paribas, which may be sentenced tomorrow,
which absolutely did not cooperate with U.S. prosecutors for understandable reasons,
including it sounds as if the French government itself part or maybe in a role of the state bank was
telling them not to cooperate and they had tacit authorisation to send a lot of money to the Sudan.
And, you know, maybe the U.S. government doesn't like it, but we're a French bank and the French government seem to think it's okay.
So they received a $9 billion fine in part because they were completely uncooperative.
Whereas HSBC I.
A UK bank. There are similar law, similar enforcement style in the UK as there is now.
They understood that the right thing to do is to say, we're sorry.
We will fix it. We will negotiate this with you.
We want this case to go away. Some foreign banks may not get that message are foreign companies and they may try to or
they may just not cooperate or they may try to litigate it in ways that aren't helpful.
Some of these companies don't cooperate at first and then they realise, Oh,
we should be hiring a New York law firm to sort of make this go away for us.
Then they hire the New York law firm and the case settles on much better terms.
That was the case with Alcatel-Lucent, another French company, which wasn't cooperating for about two years.
And there's this fascinating agreement where the agreement basically describes they were non-cooperative.
You know, we knew they had done it because their competitors turned to them.
But we give them credit for the remarkable cooperation they've shown just in the last year when they heard the New York office.
The but it could it could be that U.S. prosecutors are trying to level the playing field in favour
of U.S. companies and and that they're targeting foreign companies in a way that they wouldn't.
Could it be that U.S. companies have more negotiating power?
They know to to to hire the the law firms with the former federal prosecutors that can talk to their old friends at the Department of Justice.
And these firms absolutely do market their ability to get the company a meeting of the highest levels of the Department of Justice.
It is routine for these cases to receive review not just by the U.S. attorney, but by the deputy U.S. attorney and the U.S. attorney.
Eric Holder will have personally discussed these particular the HSBC settlement, the big corporate settlements.
They will reach the highest levels, the Department of Justice, the regular cases, though, there's no rule about that.
And, you know, plenty of U.S. attorneys say, if you ask me to review something one of my prosecutors did, of course I would.
But these cases go all the way up. And so that it's very, very hard to know what the explanations are.
This is just a pattern.
The other feature of these cases that I wanted to note is that the fines, the actual criminal punishment piece of this is only a small part of it.
Far more money is paid to victims or in forfeiture. Far more money is paid to regulators.
And it's hard to know whether civil cases settle and what the amounts are.
Civil settlements are often confidential in the U.S. because the corporate defendant doesn't want people to know what took so long as cases for.
But at least the observed civil settlements that accompany these deferred non-prosecution agreements at least are larger than the fines,
and there may be much more than that. I should note that this these numbers that I'm giving there should say something about where they came from.
There was no place to look to find out information about corporate prosecutions in the U.S.
Exactly. The U.S. Sentencing Commission keeps data on people, individual people and corporate people that are sentenced in a quarter.
The problem was that starting in the last decade or so, starting in 2003, really the biggest and most important companies,
more often than not receive these out of court settlements, these deferred or non-prosecution agreements.
The Sentencing Commission has no information on those cases, and there was no collection of them.
There was no way to know what was happening in those cases early on.
These settlements attracted my interest as a former civil rights lawyer, actually,
because I was intrigued that prosecutors could get all sorts of institutions, institutional reforms,
the civil rights lawyers,
but never again if they were prosecuting as private genius general a prison that was violating prisoners rights or a school that was discriminating.
Those cases would be before a judge and judges strictly monitor the remedies.
But when prosecutors are doing that, there are no rules. So I began to collect and archive these deferred and non-prosecution agreements early on.
Over the years,
we've also done things like these Freedom of Information requests to the General Accounting Office mostly relied on my website to get information.
Then they did an inquiry in 2009 where they found a few more agreements.
A First Amendment clinic that we have at the University of Virginia.
And I'm not sure why freedom of information necessarily relates to the First Amendment, speech rights, whatever is very useful to me.
They took on as a project suing the Department of Justice to locate some agreements that had been kept sealed for reasons that are unclear.
And we've now received most of those, and we're still suing over a few more. And if they're obstructionist, we're going to ask for all kinds of fees.
And we've embarrassed them and it's kind of fun. So we have amassed this archive, which is available online and there are links to it.
You can well, we're redoing AD over the next few weeks.
Hopefully it'll finally be done. Although I don't know, it was supposed to be done in the fall. You can search by company and buy a few things,
but it will be updated hopefully soon so that you can look at just foreign bribery
cases and the cases with the biggest fines and just the public companies,
because I have all that information, shouldn't be that hard. But at the same time, to create a website where you can look at all that.
No. I also took on a much more complicated project of tracking down and creating a corporate crime register.
Really, of all the companies that are convicted every year, many more companies are convicted every year.
Then enter these out of court deals. And so there's over 2000 companies that have been convicted since 2000,
but most of those are small mom and pop companies, not particularly interesting cases.
The. Sentencing Commission is not happy that I've done this because they do not analyse the data.
I wanted to make sure that no individual people were named.
But I have fewer qualms about a corporate offender registry than an individual offender registry.
That said, I do feel a little uncomfortable with being the maintainer of the offender registry,
but I do think that there's the public should know when a company commit crimes in a different way than individuals do.
What has been particularly interesting is that so many of these companies receiving the out of court deals and deferred prosecution agreements,
non-prosecution agreements are slightly different. They aren't even filed with the court.
They're just we would we agree not to do anything in your case, but you have to follow these terms,
which is different than a declination where there'd be no agreement.
We're just not bringing a case against you because we think you did nothing wrong.
A non-prosecution agreement is we're not prosecuting you, but you did something wrong and you've admitted you've done something wrong.
You accept responsibility, but we're not prosecuting. We will, though, if you don't follow these terms over the next two or three years.
Many of these are Fortune 500 global 500 firms. More than half were public companies.
So these public companies are getting, again, the most lenient out of court deals where you think that's not that's not fair as between
companies that it's the smaller companies receive the harsher consequence of the conviction.
But of course the concern is that the public companies can say we're public, we're big or important to the economy, we're reputation sensitive.
Is it particularly important for us to avoid the collateral consequences of a conviction?
Now you can see that again, there are many more convictions each year than this little slice of deferred prosecution agreement.
But the really interesting cases are concentrated among these out of court deals, the agreements of public companies.
The agreements involving the biggest billion dollar clients is another way of showing a public companies.
Now, for the most part, more often than not always receive these deferred or non-prosecution agreements.
And while there are still some public companies over here that do get convicted and they are destroyed, they plead guilty to crimes.
And so it's not exactly the death knell to be convicted of a crime.
I've argued that more companies should be convicted just like any criminal offender is.
Yeah. And how much of this to attribute to the revolving door between the prosecutor.
Right. And the big old firms like Cool? I saw some of these going on.
Well, he was told to have these prosecutors, that is senior partners who clearly have an open door to the public.
So is there is there a direct correlation here with the kind of statistics here?
I don't think there is. It's obviously an extremely you have a very high paid future.
If you have been, for example,
in the fraud unit of the Southern District of New York or in the criminal fraud section doing foreign bribery cases at main justice,
you know, in five or six years. You can be a partner making $2 million a year.
And for that reason, though, those units attract incredibly, incredibly aggressive and brilliant young prosecutors.
And so they do get people who really want to be aggressive and show big victories.
And so in some ways, they have all the incentives to bring bigger and bigger cases to show how good they are so that
companies will hire them to avoid precisely the thing that happened to their convict competitor.
And so it's hard to say that there are other reasons why it's just impossible for these small groups of prosecutors to bring cases this big.
And so, you know, the prosecutors in the Eastern District of New York that prosecuted HSBC,
that office would have been lucky if it had had two prosecutors assigned to the case, maybe two FBI agents.
And if they're lucky, two prosecutors and a supervisor spending a lot of time on it, just we see it as hiring internal affairs.
It's routine for companies to spend hundreds of millions of dollars defending these cases.
Double wasn't Clinton billed.
It was $800 million to Siemens when it was representing Siemens in a very successful resolution of the largest foreign bribery case of all time.
And they hired they paid hundreds of millions of dollars more to outside auditors and experts.
And, you know, there's been more than $1,000,000,000 was spent by Siemens in investigating itself and defending itself.
So this is wonderful work for my students.
And there's this suddenly there's all this interest in taking corporate crime related classes in U.S. law schools,
because there's an enormous amount to work in these cases for huge groups of lawyers to read all the documents of prosecutors.
Yeah, it's understandable that they would settle these cases in this way where they can't realistically look at the documents themselves,
that they're relying on the company to show them what happened and. What was important and who did what,
and they were relying on the company to monitor itself over the next 2 to 3 years
and show that it's improved things and therefore the case can be dismissed.
So they're, you know, miserably outgunned. And even a revolving door concern is sort of the least of it in terms of what prosecutors are up against.
In some ways, that's what really attracted me to the subject and sort of a it's a lovely change for me to see prosecutors as the little guys, as the.
David I'm not used to seeing prosecutors really in the most powerful type of
enforcer in the U.S. And U.S. prosecutors have much more power than prosecutors in
just about any other country in the world because of the sentencing guidelines
and because of the tradition of prosecutorial discretion and lack of oversight.
And here here you go.
You go back to who does the what changed that created this whole system of out-of-court deferred prosecution agreements with corporations.
What changed? Changed in 2003. And it didn't change by accident.
There had been some principles in place for what you do when you're a criminal defendant as a corporation.
And they actually were drafted by Eric Holder when he was deputy attorney general under under Clinton.
And then Arthur Andersen happened.
And I tell the story of the Arthur Andersen trial in the first chapter of my book, because it really announces a new era of corporate prosecutions.
It was also an incredibly interesting trial. But Arthur Andersen is prosecuted for obstruction of justice.
They shredded just enormous quantities of documents related to their work with Enron because they knew they
were very big trouble and they had dump trucks full of documents every day leaving their offices in Houston.
They pay a fine, but they are then debarred from doing work with public companies by the SCC and this Big Five accounting firm goes under.
There's all sorts of criticism. Prosecutors destroyed this accounting firm.
Why did they do that? Prosecutors felt quite justified in what they did, given the scope of the crimes committed by Arthur Andersen.
But nevertheless, they announced these new principles,
encouraging prosecutors basically to go easier on companies and to take into consideration things like the collateral consequences,
say, on employees that didn't have anything to do with it.
What if it's just a small group of rogue employees who really want to punish the whole company?
Could prosecuting those individuals alone be enough? Well, do they consider whether just to prosecute the head of compliance, his bosses?
Could they have just prosecuted the people at HSBC or doing this, or was it so systemic?
Maybe it was certain that was Carl Levin, too.
It really is appropriate to hold the company accountable to or could the regulars take care of this problem?
If we think that, you know, say like the. Environmental Protection Agency, the nuclear regulators here.
And they just use the example that I've been focusing on, where there is a perception that the regulators could take care of anything,
that we absolutely can't depend on them to solve this problem. So there are factors having to do with sort of who did what was in the company.
These factors are sort of more about corporate culpability.
So was this a really serious offence was pervasive within the company?
Does the company have a record? HSBC had all those things for very serious offences, lots of them.
Sounds like a pervasive across operations across the world and have been going on for many, many years.
And so. These factors, by the way, don't reflect the law in any way.
The law in the United States is unusual. There's no country that has a state standard like this.
Prosecutors in the U.S. have a quite powerful tool and a doctrine that dates back to in 1809 case New York Central versus Hudson,
a doctrine of concept familiar from tourist fondue at Superior,
where if there's a single employee acting in the scope of employment that commits a federal crime, that the company is as accountable.
Now, Congress could change that by statute.
Congress has instead adopted the principle across a wide range of federal crimes that if a single employee doesn't, the company is on the hook.
Now, what these factors suggest is that prosecutors don't prosecute every company or an employee commits a crime in the scope of their plan.
Instead, they want to see a company where it wasn't just one employee,
where there was something more pervasive, where it was there was, you know, pervasive wrongdoing.
It was a serious offence. And, you know, there. Thousands.
There's a 10,000 people prosecuted for fraud alone in the United States every year.
A lot of business crime was prosecuted here. And the vast bulk of those cases, no company was.
So maybe 10,000, 15,000. It's hard to count white collar crimes every year committed in a business setting.
Less than 200 companies are prosecuted every. It's now this middle set of factories has had to has to do with the company's good conduct.
Did the company come forward on its own? One aspect of corporate crime, which makes it different than a lot of types of crimes,
is that although fraud often has this character, it's almost a fraud.
They were fooled. They were deceived. They may not have any idea that they were fooled or deceived.
Corporate crime has a way of staying concealed within the corporation, and that because of that, self-reporting is extremely important.
And prosecutors place understandable weight on a company coming forward.
Tell us something we didn't know about. Did the company have a good compliance program and something just sort of slipped through the cracks?
Or and what have they done about compliance where they've done to to make right on this
since it came to light that there were these corporate crimes that had been committed.
And so prosecutors focus on on that compliance aspect as well, at least in the terms of these agreements.
But when you look beyond sort of, yes, you must improve compliance, hiring a compliance officer,
I became increasingly concerned with the pattern across these agreements,
because one aspect of this memo is that it really reflects an idea that finding the company isn't enough.
You have to think about what this corporate offender is like.
You need to look at these companies not as individuals, but we need to look at how serious the sort of culture is of tolerating misconduct.
And we need to try to fix something in the company. We need to do a structural reform here to prevent it from happening again at this company.
Well, how seriously do prosecutors take that, that they can impose a fine?
They understand that the fine will be paid by customers, the cost will be passed on to shareholders.
The right people may not actually feel the brunt of that. Fine.
So how do you do something to the company so that the right people feel the impact of a criminal prosecution?
That's really the question.
And this memo doesn't explain if you don't say what you do to the company to change it, to prevent the crime from happening again.
Now, when I looked at the terms of these agreements and here's some coding of them, well,
most of these cases impose some kind of compliance reforms, which are a lot of cases then impose.
Not that said nothing about compliance. Now, why did you prosecute this company?
If there wasn't a compliance part of it,
you shouldn't have prosecuted them at all or you prosecuted them and are just sort of not saying anything about how the company is supposed to change.
But I was particularly disturbed that that was there was a small minority of these
cases that said anything about auditing the compliance to check whether it's working.
So typically they'll just be some generic language. HSBC adopt effective anti-money laundering programs.
Well, what is an effective laundering program?
And in HSBC, there was a corporate monitor who was supposed to look at the effectiveness of these programs, not just these cases, having an auditor.
They're the ones that have a monitor. There's a lot of cases with no monitor overseeing the compliance process.
There's not a person there to do it.
So from the company saying, what we're going to report to you every six months, every year, we'll tell you how it's going.
The monitor, the HSBC case.
And then the person that's monitor and also often get paid an enormous amount of money,
in part because they have to hire large teams of high paid lawyers and then other professionals.
And certainly the Monitor is the head of a large team.
If you think of what it would take to wash over compliance like a company like HSBC with operations all around the world,
it's a serious job and it's a five year job for Michael Tomasky.
A year into this agreement. HSBC recognises it's going to be a long journey and know we have a lot to do.
And the judge actually said something unusual in one of these cases.
Most of these judges say, well, it's a deferred prosecution,
but it's not really a case in front of the prosecutors or dismissing this case eventually.
And there's no trial in this case. This case is frozen on my dockets.
We are calling the speedy trial court idea is this case will be dismissed if the company shows good conduct.
Well, Judge Gleason basically said, what am I, a potted plant here? This is a case in my courthouse and on my docket.
In a way, I'm not just going to sit here and then be told in five years and everything is fine.
I want you to report to me every few months and I want to know what the monitor is doing.
And I will make public at least portions of what the monitor concludes, because this is a case of public importance.
And if they're not going to bring this case to trial, then I want to know what's happening. And I think the public has a right to know, too.
So I was I was very happy about that. That was one of the things that that I had argued would be important in my books,
since so much of what happens in these cases is totally non-transparent, the company pleads guilty.
At least there's a plea hearing where they have to do things in public and
explain what crimes they committed and the implementation of these agreements.
Totally non-transparent no one has ever read, except in two cases, the reports of a corporate auditor doing oversight.
Well, we know something about oversight in this case, because the judge ordered that the reports be provided.
And all along, apparently, the monitor has been saying that things are still a shambles.
Vigilance. They lacked integration, coordination and standardisation.
I think that I love that they apparently have certificates.
I am a team to bird giving to employees as a way to thank them.
I'm sure that that's worked. Enormous cultural changes, although although in a we're here in All Souls, we learned that the art is very important.
So it may be actually identification with the foul is important for a certain esprit de corps in an organisation.
They did hire. They've hired thousands of employees. They certainly on paper have done things that sound really significant.
They've hired, I don't know who or Jonathan Evans is or a former chief styling service head.
Yeah, I got the sense that these are quite distinguished people and important people that were being hired.
And so but that sounds as though that sounds significant.
They made major hires. Does that mean that they've changed their and they change their leadership as well?
Is it now a change to bank where this prosecution actually accomplished what prosecutors really want to do,
not just get a big fine to be paid to the US Treasury,
but actually to prevent future crime to actually change a primogeniture environment at a major corporation.
Maybe this is a success story. Well, there's one way where this clearly was not a success story, if there are any, in this room.
I think that sometimes individual people should be prosecuted if a serious crime is committed.
I don't know if there are any in this room that think that no people were actually prosecuted.
HSBC, do you think?
Well, that's that's interesting because in a regular case, sometimes prosecutors can get a cooperative, has lots of information about a crime.
But it's the rare individual case where someone is wearing a wire and there's a really key person where you have the
kind of information that a corporate cooperative can provide because HSBC and in that deferred prosecution agreement,
they agreed to cooperate in every way, any document you want, any email, any internal communication.
The prosecutors have everything they can find out exactly who did what and no access to it.
You know, at a major corporation like that of remarkable access, they could figure out exactly who these employees were.
And in fact, the statement of facts described things they described.
Right, that compliance head who was complaining and got fired for bringing to light serious failures.
I mean, they're amazing emails. We don't know who the authors were because it was blacked out of the public version.
But prosecutors up they know about, you know,
who told them an employee was told to f off when she brought up that that Hamas was a terrorist organisation.
So, you know, you probably shouldn't have money flowing to them.
I mean just unbelievable stuff in this emails and and yet HSBC is one of these cases where no individuals are prosecuted.
And this is a follow up to the book that I'm still working on. I wanted to see how often individuals were prosecuted accompanying these agreements.
Only about a third of the time are individuals prosecuted.
And I say that in the book and I say that only about two dozen of them are CEOs, another dozen Russia.
Most of the people who are prosecuted are fairly low level, up to mid-level employees.
But I also wanted to find out and that took more work. And this is a.
I recall I didn't work out since the book came up. Well, those individuals who are prosecuted, how many of them get jail time?
It turns out far fewer than his average in comparable fraud cases, money laundering cases, not just cases.
Typically, the result is no jail time, some kind of probation, some kind of a fine.
There are a few cases here and there. Bernie Ebbers, the CEO, got 25 years.
There are two high profile cases where someone quite high up is possible.
There are very, very few of us. And in general, individuals are not prosecuted when they are.
They're not necessarily the people that you would like to see singled out. And they tend not to receive jail time.
So we had there was a review, which I was very happy with, written about my book by Jemmy Carter, a federal judge.
And he talked a lot about the Pfizer prosecution, the first billion dollar prosecution in the United States.
There were two individuals prosecuted in that case, but they went to the judge that sentenced and he said, no, we're sales managers.
We do manage people who are illegally selling this drug off label.
But there are a lot of supervisors above us. And the sales manager is not a fancy title at a company like Pfizer.
You know, we were doing what we were told. We were telling our sales agents to do what we told them.
But we were we had there were many, many levels up above us who were telling us to aggressively market this drug off, Lou.
Why us? Why just us, too? There are a lot of salesmen, thousands of sales managers and tens of thousands of sales employees.
And the judges in both their cases basically agreed and said, yeah, probation.
Why are you. I can sympathise.
Elizabeth Warren has been prominent saying that in a case like HSBC, HSBC actually brought up the phrase too big to jail,
which I think at the time I thought was created by lots of other people, have used it totally independently before the book was exhausted.
Individual people go to jail for a long time for money laundering.
And HSBC, not only was the bank settled out of court, but no individual people are prosecuted.
The House subcommittee actually created this monopoly card, which they gave as a present to the Obama administration.
And I don't know whether that's fair use of the monopoly imagery, but, you know, the and then what's remarkable is that, well, is HSBC a cheeseburger?
Some of you may have seen the news this spring that there have been remarkable revelations.
I'll get to that in a minute. The monitor, as of this spring has said that compliance is still seriously deficient at HSBC,
that despite their hire of the former head of the MI5 or whatever, and hiring close to 10,000 employees.
But there are also these revelations, separate revelations about Swiss banking that apparently during that same time period,
they were doing some of the same stuff that other Swiss banks are doing aggressively marketing tax shelters.
Apparently the biggest financial whistleblower of all time.
So France released all of these documents to a whole network of independent media organisations showing what was going on in his head.
So totally different crime happening during the same time.
And meanwhile, there is this judge, Lisa, who has said, I'm exercising supervisory power over this case.
So I'll be very interested in whether Judge Lewis and ask the parties to reach his brief is because HSBC in breach of this agreement,
because we now know it is committing other crimes during the same time period. Could HSBC sound in breach?
Because it sounds like it's not complying that well, although spending a lot of money and trying to revamp its operations?
Well, the don't say this is largely an out of court deal. My responsibility over this thing is quite limited.
The prosecutors are happy with HSBC, that I'm happy with HSBC.
And at the end of the five years, the agreement will be dismissed and no one will hear about it again.
Now, I should tell you that the higher authorities than me insist that the too big to jail concern is not one that should concern us.
And this is my last. Your. This message dates from last summer.
There is no such thing as too big to jail.
And so when he said that, I realised that I really think I should try to put a stop to the book.
And the publisher said that it was too far along at that time, and I had no particular choice over the matter, and it was out of my hands.
What was interesting is that what he then says is no financial institution is beyond prostitution.
But of course that doesn't answer the too big to jail concern. HSBC.
This isn't a case where they intended to create money laundering.
Well, actually, that's not the standard recklessness would be perfectly enough wilful disregard.
There's an Austrian instruction that business that addresses that problem in U.S. courts.
But it's a separate question of individual employees to be to jail.
And how about the too big to jail related concern with not is it above prosecution?
HSBC was prosecuted. But does the entity actually get convicted?
Does it have a criminal record? If HSBC gets prosecuted again for the stuff involving Swiss banking, it has no criminal record.
It can say, we're not arrested in this company, don't give us any enhanced has.
We're not in violation of any probation because we have no criminal record.
Our last case was settled out of court. There's a separate too big to jail concern with the substance of the agreement forgetting about form.
If one doesn't care whether it was a conviction or a deferred prosecution agreement, the question is, what are the terms of this decision?
Well, were they paid a deterrent time that's going to send a message that no one should ever do this again.
They're paid a highly reduced fine. And how about the non five terms?
Are those terms, those compliance terms actually going to fix the company? It sounds like so far not so good.
The monitors have said that they've made such halting progress.
And so there's a whole family of these too big to jail concerns. And one of the main goals in the book is to although I think it's a memorable phrase,
and I'd like to try to complicate the phrase to argue that there are many, many difficulties in bringing corporate prosecutions.
I sympathise with the, quote, talented prosecutors. We're often bringing these cases.
I'm not surprised at all that they feel the need to compromise and indeed ways there's all these cases.
But I certainly wouldn't want anyone to hear the message from the Department of Justice
that we are bringing in billion dollar funds that no one has ever seen before.
We are triumphing over corporate crime, I think not so much.
I do think that these cases and, you know, just HSBC see a chance to burn.
I don't think so. I do think that these cases really raise the concern that we are uncovering perhaps more serious corporate crimes than ever before.
But the cases are being settled in this novel out of court way that we've also never seen before.
I'm not convinced at all that despite the real revolution in corporate prosecutions in the United States,
that we've solved the very difficult problem of how to police corporate crime.
I'm not sure it's a good thing that countries like the UK are imitating the
US approach and sort of taken off and many other countries across the world.
But I do think that this is a difficult problem for which there are not clear answers.
And I end the book saying that corporate prosecutions are are themselves too important to fail.
And we really do need to pay attention to how these cases are brought and continue
to put pressure on prosecutors in the U.S. to explain what they are doing. If nothing else,
just so that we know more about about what their priorities are and to what degree companies are actually being held accountable on the ground.
So I'll stop there. And I'd love to talk about this, my brother.
That was fascinating,
both the contents and I think that was probably the most sophisticated presentation that also has ever seen that he would like to see again.
I know you said that's an insult. So we have 25 minutes for questions.
You're already some questions on.