The Justice Department’s New Policy Is a Brutal Admission of Eric Holder’s Failures

The Justice Department’s New Policy Is a Brutal Admission of Eric Holder’s Failures

REUTERS/Kevin Lamarque

This week, the Justice Department felt the need to write a memo to staff instructing them to indict individuals when they commit crimes, seemingly something implied by their job titles. It doesn’t say as much about the current Justice Department regime under Loretta Lynch as it does about the former one under Eric Holder.

No major Wall Street executive went to jail for the illegal actions that precipitated the financial crisis, despite a mountain of documentary evidence of fraud. Corporations and their employees got away with what amounted to slaps on the wrist. And Holder, after presiding over this, joined the head of his Justice Department criminal division and several top deputies at Covington & Burling, a white-collar defense firm that represents most major banks.

Related: Eric Holder’s Shameful Legacy on Wall Street Fraud 

You can draw a direct line from this failure back to the “Holder memo,” written when he served as a deputy in the Clinton Justice Department. That memo created the “collateral consequences” policy, arguing that prosecutors who seek criminal cases against large companies should take into account innocent victims who may get hurt. It laid out a host of alternative remedies, such as fines and deferred prosecution agreements.

This eventually gave prosecutors a way to shrink from complex cases, to talk themselves into not wasting the effort. The working theory inside the Holder Justice Department was to only go after cases where victory was absolutely assured, and where collateral damage was minimized. And this philosophy drifted to preventing prosecutions of individuals as well, even though there’s no shred of evidence that sending an executive to jail would sink a company (or that juries won’t be able to understand complex cases against individuals, for that matter).

This Holder doctrine has soured opinions of the Justice Department, giving the impression that it serves only to protect the rich and powerful from the consequences of their actions. It’s a perception that DoJ wants to correct, which is why it made the “Yates memo,” named after Deputy Attorney General Sally Yates, public.

The idea that prosecutors have to be told to prosecute again is an utter indictment of the Holder era. What was holding them back before? It’s also worth noting that this change in direction, only applicable to future cases, comes after nearly all of the statutes of limitations for crisis-era misconduct have passed. After the foxes have left the henhouse, DoJ decides it’s time to find some foxes. If this realization causes you to break something, then we have that in common.

Related: DOJ Is Still More Bark Than Bite When It Comes to Corporate Crime

Despite this, I will try to look forward. Though prosecutorial will ultimately matters more than any guidelines, directives like this have historically been an important signal. Will the Yates memo create a tone at the top to effectuate change?

The memo proceeds from this premise: “One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing.”

Yates recognizes challenges to this: complex lines of responsibility, difficulty identifying intent, levels of decision-making insulating top executives. Therefore, she outlines steps that should be taken in corporate cases to maximize the possibility of holding individuals accountable.

The biggest change concerns cooperation credit. In the majority of legal cases, a corporation identifies misconduct, pledges to cooperate with the investigation and hires lawyers (frequently ex-Justice Department lawyers) to conduct an internal probe to ferret out the problem and take steps to correct it. DoJ usually rewards this cooperation with reduced penalties.

Related: How Wall Street Is Fighting to Rip Off Your Retirement Money

Now, Yates decrees that no corporation will get credit for cooperating unless it essentially offers up all individuals responsible for the misconduct. And Yates doesn’t want that person to be a scapegoat, telling The New York Times, “We’re not going to be accepting a company’s cooperation when they just offer up the vice president in charge of going to jail.”

Regardless of that tough talk, I could envision how this demand for corporations to turn in individual wrongdoers gets abused. You could see executives who lose power plays inside their organizations bear responsibility, regardless of whether they deserve it.

Most important, this leaves in place the dynamic of corporate internal investigations doing the work of law enforcement. Internal investigations paid by the corporate offender simply aren’t going to look as hard at the depth of the misconduct. It requires old-fashioned police work, including flipping lower-level employees to go after those truly responsible. The Yates memo still relies too much on the old way of doing business.

Related: Meet Loretta Lynch, ‘Steel Wrapped in Velvet’

Effective police work takes resources, which is where the real impact of this guidance will lie. It’s nice to say that corporate investigations should prioritize prosecuting or imposing civil penalties on individuals first and corporations second, or that criminal and civil attorneys in corporate prosecutions should communicate, or that prosecutors shouldn’t release guilty parties from liability, all of which is in the Yates memo. The provision to not resolve any corporate cases without a plan to deal with individual cases before the statute of limitations expires, for example, can be an important step. But if the prosecutors can’t do more than accept what the guilty corporations tell them, the memo is as useless as the Holder memo was before.

The Justice Department would not have attempted to make this change without full recognition of the loss of public trust its actions over the past several years have engendered. Relentless criticism of the lack of white-collar prosecutions had an impact, and those who participated in that conversation should be proud.

But at this point, guidelines won’t do the trick, only actions will — a genuine effort to make the concept of justice more than a punch line. This is the beginning of a real overhaul in mindset at the Department of Justice. Hopefully, the resources and training needed to undertake wide-ranging investigations will accompany the guidelines. Hopefully, U.S. Attorneys and FBI agents will be allowed to do their jobs. Hopefully, settlements with corporations no longer represent a dead end of accountability. Hopefully, the Justice Department will live up to its name.