Evaluating “Consumer Relief” Payments in Recent Bank Settlement Agreements

Journal of Business & Securities Law, Vol. 17, No. 2, 2017

In recent years, the Department of Justice (DOJ) has settled allegations of wrongdoing in the 2008-2009 financial crisis with multi-billion-dollar agreements with major financial institutions such as Bank of America, Citigroup, and Goldman Sachs. On the political left, voices such as Elizabeth Warren have criticized these settlements as inadequate reparation for the damage allegedly done by banks in the financial crisis. On the political right, however, the conservative Heritage Foundation’s Paul Larkin has singled out these agreements – particularly their provisions for donations to third-party organizations such as the National Council of La Raza and housing counseling agencies – as unlawful cronyism.

This article reconsiders these arguments by closely examining the monetary payments and laws used in the settlement agreements. The DOJ has primarily used two federal laws – FIRREA and the False Claims Act – to induce banks to settle. Despite no provision in these laws for consumer relief, the DOJ has constructed settlement agreements that provide incentives for banks to provide relief to consumers, some who may not have been directly harmed by the bank’s alleged wrongdoing, as well as to third-party organizations. The article concludes that these policymaking decisions are best left with the Congress, as it has the constitutional responsibility to appropriate money intended for the federal Treasury. Congress should enact legal reforms and reclaim its appropriations power.


The Political Economy of Corporate Financial Regulatory Legislation

John Marshall Law Review, Vol. 49, No. 3, 2016

Abstract: 

Every few years over the last several decades, Congress has been faced with the question of how to best regulate corporate financial activities. In the late 1970’s, concern for bribery overseas by American businesses led to passage of the Foreign Corrupt Practices Act (FCPA). In the early 2000’s, concern over misreporting of financial activities led to passage of the Sarbanes-Oxley Act (SOX). In both of these laws, corporations are required to follow new rules and regulations relating to financial reporting and disclosure. How influential were business interests in shaping the passage of these two laws, and what lessons can we learn from the legislative history to inform future debates over corporate financial regulatory legislation?

This paper considers this question by examining the legislative history in both the House and Senate during the debate over both the FCPA and SOX. Using Richard Posner’s theory of interest groups in his foundational law and economics piece, Theories of Economic Regulation, the article evaluates the impact of business special interest groups in shaping the legislation and find that as a general matter, the business “interest” was relatively weakened by political forces and lack of strong coordination and common interest. One business interest – accounting – was a proponent of new rules and regulations and has remained supportive ever since passage of these laws. While both laws have had a tremendous impact on businesses in terms of compliance and investigation, the accounting industry has derived a benefit from higher auditing fees, more arduous auditing needs, and economic concentration in its own industry. When a new corporate financial scandal arises in the future, it is important for policymakers to understand the unintended effects of legislation and to pause before rushing in to regulate corporate financial reporting.


Who Watches the Watchmen? Accountability in Federal Corporate Criminal Prosecution Agreements

American Journal of Criminal Law, Vol. 43, Issue 1, 2016

Abstract: 

The Department of Justice entered into hundreds of deferred and non-prosecution agreements (DPAs and NPAs) with corporations over the last twenty years, and continues to increase the use of these agreements every year. However, there is no academic scholarship that explores whether the DOJ has grounded these criminal settlements in traditional criminal sentencing procedures. Specifically, do these agreements – which can often include hundreds of millions of dollars in penalties – follow the carefully considered principles of the U.S. Sentencing Guidelines for Organizations?

This article considers this question in light of the public choice theory of criminal procedure and concludes that the DOJ is not utilizing the Sentencing Guidelines in a manner consistent with basic notions of government accountability in the criminal justice system. The article uses data collected from over three hundred deferred and non-prosecution agreements and finds that only a small percentage include an analysis of a monetary penalty based on the Sentencing Guidelines. The government’s use of a non-traditional process to resolve corporate criminal cases should be concerning in the absence of an institutional check such as the Sentencing Guidelines. The article urges the DOJ to adopt standardized procedures for future criminal settlements, including a demonstration of the Sentencing Guidelines analysis typically found in plea agreements.

This article was recently cited in a Texas Law Review article.


The Use of Non Prosecution Agreements and Deferred Prosecution Agreements

(with Cindy Alexander, Mark Cohen, Sophia Higgins, and Matthew Sibery)

Searle Civil Justice Institute, April 2015

Abstract: 

Over the past decade, two novel approaches to resolving corporate criminal investigations have developed, the Deferred Prosecution Agreement (“DPA”) and Non Prosecution Agreement (“NPA”). There is both legal scholarship and policy debate surrounding the efficacy of DPAs. On the one hand, scholars have questioned whether DPAs usurp the power of judge and jury and provide undue power to prosecutors, while other scholars have warned that DPAs allow the prosecutor and corporate management to negotiate settlements that are neither socially desirable nor in the interest of shareholders. Some say that DPAs result in sanctions (both government-imposed and market-imposed) that are more severe than criminal resolutions while others claim the opposite and that DPAs provide socially desirable alternatives to costly sanctions such as debarment. Yet there is currently no data that would allow policy makers to systematically compare the provisions of DPAs to criminal resolutions or to understand which firms (and type of crimes) are targeted for criminal versus DPA resolution. In 2012, the Searle Civil Justice Institute commissioned a research plan, which is designed to place the policy debate on a firm empirical foundation. The project collected 15 years of data (1997-2011) for the over 400 public companies whose criminal investigations have been settled either through NPAs, DPAs, or pleas.