Liberals and conservatives will long debate the legacy of outgoing Attorney General Eric Holder. Liberals and Democrats laud his deep commitment to civil rights and efforts to promote voting rights and criminal justice reform. Conservatives and Republicans, on the other hand, deride him as an overly partisan and ideological figure that presided over debacles such as the Operation Fast and Furious, failed to fully investigate the IRS/Tea Party scandal, and hindered their attempts to implement voter ID laws.
But there is one area where there was some bipartisan agreement about Eric Holder’s tenure: disapproval of his failure to aggressively pursue criminal charges against large financial institutions for their behavior in the lead-up to and the aftermath of the financial crisis. Despite deferred prosecution agreements linked to large (but hardly deterring) fines, the Holder Justice Department will be long remembered for its “too big to jail” approach to financial crime.
Naturally, much of the disappointment on Holder’s record centers on the failure to hold those responsible for the recent financial crisis fully accountable. But as my co-authors and I argue in our recent book “Political Bubbles,” building a more credible and vigilant law enforcement regime for the financial sector is crucial for managing the systemic risk and market manipulation which could lead to crises in the future. In that regard, the light-touch approach of the past six years represents a failure of financial reform.
With the appointment of Loretta Lynch, the two-time U.S. Attorney for the Eastern District of New York, there is an opportunity for the Justice Department to take a tougher approach to financial crime. Although Lynch’s public record does little to suggest that her approach to Wall Street would differ dramatically from that of Holder’s, a very productive use of the Senate’s “advice and consent” prerogatives would be to open a discussion about how to end the “too big to jail” approach. To that end, let me offer a few questions that senators might pose to Lynch:
* In reference to prosecuting corporate crime, the U.S. Attorney’s manual says:
In considering collateral consequences, prosecutors must determine whether there would be disproportionate harm to investors, pension holders, customers, employees, and others who were not personally culpable, as well as impact on the public arising from the prosecution.
How would your Justice department weigh the “collateral consequences” of its prosecution of financial firms? Could some firms be too big, interconnected, or complex to prosecute? As chair of Holder’s committee on policy, did you ever push for revisions to these policies?
* In comments to a civic association last year, you suggested that it was much easier to prosecute the small players in finance rather than the big banks. Doesn’t this mindset contribute to TBTJ? As AG, what will you do to improve the capacity of the department to prosecute big firms as aggressively as it does small firms? What resources and new authorities does the department need to accomplish such a goal (assuming it is one you share)?
* You played a major role in the Justice Department’s settlement with HBSC over charges that laundered money for terrorists and drug cartels. There were no criminal sanctions imposed on the corporation or the individuals involved, and the monetary settlement has been widely criticized as too low given the egregiousness of HSBCs alleged behavior.
* Do you agree with Assistant Attorney General Lanny Breuer’s rationalization of the settlement when he said:
I think I and prosecutors around the country, being responsible, should speak to regulators, should speak to experts, because if I bring a case against institution A, and as a result of bringing that case there’s some huge economic effect, it affects the economy so that employees who had nothing to do with the wrongdoing of the company… If it creates a ripple effect so that suddenly counterparties and other financial institutions or other companies that had nothing to do with this are affected badly, it’s a factor we need to know and understand.
* If you had to do it over again, what would you do differently?