4 Takeaways From the Trump-Era Plunge in Corporate Penalties
Posted November 5, 2018 6:24 p.m. EST
At a time when the Trump administration is loosening rules established in the aftermath of the 2008 financial crisis, financial penalties imposed on companies and big banks accused of wrongdoing have fallen precipitously since the Obama administration, according to analyses by The New York Times.
In consultation with outside experts, The Times conducted separate examinations of enforcement activity at the Securities and Exchange Commission and the Justice Department, comparing cases filed during the first 20 months of the Trump presidency with those in the final 20 months of the Obama administration.
The analysis found a 62 percent drop in penalties imposed and illicit profits ordered returned by the SEC. At the Justice Department, the analysis found a 72 percent decline in corporate penalties from criminal prosecutions, and a similar percent drop in certain civil penalties against financial institutions.
The analyses were based on a review of thousands of enforcement cases and interviews with more than 60 former and current federal officials. They offer the first assessment of the real-time effect that the 2016 election had on corporate enforcement by the two most powerful agencies policing the corporate and financial sectors.
The SEC has said that it should be judged by the overall effect of its cases, not by financial penalties alone, and that its enforcement efforts have been undercut by recent Supreme Court rulings and budget restrictions. In a statement, the SEC disputed The Times’ approach to assessing the agency’s record, suggesting that the conclusions were based on “deeply flawed methodology.”
The Justice Department has said the number of defendants prosecuted for white-collar crime trended downward during the second half of the Obama administration. The department has also highlighted its focus on other priorities, like violent crime.
Here are four key takeaways from The Times’ reporting:
— After President Donald Trump took office, some companies and banks under investigation looked to his administration for a more sympathetic ear — and they got one
In the final stretch of the Obama administration, a number of companies felt the Justice Department and the SEC were pursuing investigations and settlements that were unreasonable. Walmart was under pressure from federal officials to pay nearly $1 billion and accept a guilty plea to resolve a foreign bribery investigation. Barclays was facing demands that it pay nearly $7 billion to settle civil claims that it had sold toxic mortgage investments that helped fuel the 2008 financial crisis, and the Royal Bank of Scotland was ensnared in a criminal investigation over its role in the crisis. In the case of Walmart, it became increasingly difficult at the end of the Obama administration to get the company’s lawyers to schedule meetings.
Walmart had reason to hope that the Trump administration might be more sympathetic. After the Walmart bribery scandal first came to light in an investigation published in The Times in 2012, Trump, then a real estate mogul with international holdings, said on CNBC that it was unfair to expect a company like Walmart not to engage in bribery when doing business overseas. The Foreign Corrupt Practices Act, he said, was a “horrible law, and it should be changed.”
Federal prosecutors and the SEC have yet to charge Walmart.
The Justice Department did reach a settlement with Barclays, but it was for a much lower amount ($2 billion) than the Obama administration had sought. The bank’s decision not to settle with the Obama Justice Department paid off.
As for RBS, it paid a $4.9 billion civil penalty, but Deputy Attorney General Rod Rosenstein decided that the Justice Department should not file criminal charges.
— Under the Trump administration, the SEC and the Justice Department penalized fewer banks
The Times found that, under Trump, the two agencies seemed to have a lighter touch toward the banking industry. The SEC ordered banks to pay $1.7 billion during the 20-month period under Obama, nearly four times as much as in the Trump period. Trump’s Justice Department brought 17 such cases, compared with 71 in the Obama period.
— The decline in penalties partly reflects a broad shift in philosophy
Top political appointees under Trump have led a philosophical shift in governing that favors big business and prioritizes the interests of individual investors. These officials have resisted corporate penalties because they believe that they might unfairly punish a company’s shareholders for the misconduct of employees.
At the SEC, the agency’s Republican commissioners have balked at big corporate penalties, saying they unfairly punish innocent shareholders, while the Democratic commissioners argue that the penalties deter future lawbreaking.
In March, Rosenstein, the deputy attorney general, said the Justice Department wanted to “avoid imposing penalties that disproportionately punish innocent employees, shareholders, customers and other stakeholders.” He has also promised that the department will try to prevent multiple law enforcement agencies from “piling on” corporate fines. Attorney General Jeff Sessions issued a policy last year requiring settlement money to go to victims or the Treasury Department, a change that has effectively prevented prosecutors from forcing banks to spend billions of dollars addressing things like neighborhood blight.
— At the Justice Department, white collar prosecutions may be taking a back seat to other priorities
The decline in corporate penalties from the Justice Department may partly reflect the Trump administration’s heavier emphasis on prosecuting crimes related to immigration, violent crime and drugs. For two years in a row, for instance, the department has announced record-breaking prosecutions of health care fraud, much of which is related to the opioid crisis.