White-collar and regulatory enforcement experts diverge on whether recent aggressive corporate enforcement actions, coupled with high monetary penalties, reflect either heightened adverse consequences for the entities prosecuted or a continuation of the deferred prosecution era, where banks are still ‘too big to jail’. At first glance, the May 2014 Credit Suisse settlement with the US Department of Justice (DOJ) offers proof for either point. Credit Suisse pled guilty to conspiracy to aid US taxpayers in filing false documents with the IRS, and agreed to pay $2.6bn, arguably signifying a shift toward tougher outcomes. However, the closure of the government’s investigation with no further consequences – or, as Credit Suisse’s chief executive (CEO) Brady Dougan put it, the penalties had no “material impact on its operational or business capabilities” – supports a view that the more things change, the more they stay the same.

The name attached to the entity-level resolution of a criminal investigation is often less important than the certainty provided by a resolution of the collateral consequences – including the monetary settlements – banks pay to settle governmental investigations. Prosecutors’ appreciation of their leverage over corporate entities, paired with a company’s realisation that even an admission of criminal conduct may be preferable to a reputation-clearing legal victory that requires years of uncertainty, have combined to result in more corporate settlements.

The past year has seen no major contested fraud-based liability litigation between an enforcement body and an entity-defendant – Bank of America’s trial loss on liability occurred in October 2013, while the damages phase continued into 2014. However, 2014 saw many negotiated resolutions, of varying names, with varying enforcement bodies, and involving sometimes eye-popping monetary penalties. In each we can infer negotiated trade-offs in the various common elements of a negotiated resolution.

Jan-Mar 2015 issue

Brown Rudnick