Prosecutors must uphold the law, not cut deals with the accused


Plea bargaining – in which accuser and accused strike a deal – is not an aspect of legal process with which anyone should feel comfortable. The defendant benefits from a lighter sentence than might, or might not, have been imposed. The prosecutor does not have to rely on the costly and uncertain outcome of a trial, and gains evidence that can be used to convict others. As a result, justice is neither done nor seen to be done.

The beneficiary of a plea bargain is someone who cannot safely be trusted, otherwise the issue could not have arisen. The most serious consequence, now well documented in the US, involves criminals who falsely incriminate others in order to gain their own freedom.

Nevertheless, it is easy to understand why plea bargaining is widely favoured by prosecutors and regulators as a means of dealing with complex financial cases. The issues are often difficult for judges and juries to understand and the defendants usually have resources which enable them to finance endless litigation. It may be too hard or costly to secure a conviction without the evidence and admissions provided through the plea bargain.

But recently some American judges, led by Jed Rakoff in Manhattan, have led a revolt against the practice. Mr Rakoff notably rejected a $285m settlement between Citigroup and the Securities and Exchange Commission over the sale of dubious mortgage-backed securities. By settling the dispute with a cash payment, Citigroup avoided any admission of liability, which was important to a company resisting a tide of civil litigation.

Mr Rakoff queried what public purpose was served by the settlement. The purpose of the SEC is not to raise revenue, and in any case while $285m sounds a lot to you and me it is small change to both Citigroup and the US Treasury. Some other judges have followed Mr Rakoff’s lead, provoking the SEC to go back to court to query his challenge to its authority. But the judge plainly has a point. If you have not acknowledged anything wrong, or submitted to public exposure of your misdeeds, why would you not do again whatever you are alleged to have done?

The “too big to prosecute” problem is closely related. Faced with the nightmare of having to close a big US bank if a criminal conviction were recorded against it, prosecutors prefer to settle for an agreed penalty – or an admission of guilt in another jurisdiction. Excessive penalties undermine enforcement. When I was a student, the librarian, faced with the problem that too many books were returned late, multiplied the fines for this misdemeanour by a factor of 10. The result was that none of the library staff dared to collect the fines, and the problem became worse than ever.

The solution, in both the library and the corporate sector, is to prescribe penalties that will effectively deter in tandem with procedures that can be effectively implemented when deterrence fails. One unequivocal lesson of the war against corporate misbehaviour is that sanctions against individuals have far greater impact than sanctions against organisations. The look of relief on the part of some American managers guilty of antitrust infringements when their British lawyers explained the consequences is engraved in my memory. The executives knew that in the US not only might the company be liable for damages and fines but they themselves could face jail. They learnt that in the UK the worst outcome likely to be experienced was that they would be told to stop. The fear of the prison cell undermines corrupt organisations by encouraging guilty people to turn on each other.

It is equally important that it should be easier to secure convictions. Juries are often blamed for their inability to understand modern finance. But juries are drawn from men and women in the street who are mostly all too willing to see bankers get their comeuppance. Active case management by experienced judges is needed to enable issues to be clearly defined and prevent barristers from hiding the truth in verbose irrelevance.

The financial crisis left a few individuals responsible for it very rich while its consequences made millions not responsible for it much poorer. If this involves no crime, then we have failed to define or prosecute crime appropriately. More, not less, power to Judge Rakoff.

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