Federal prosecutions of white-collar crime are now at a twenty-year low. Illustration by Eiko Ojala

In the summer of 2012, a subcommittee of the U.S. Senate released a report so brimming with international intrigue that it read like an airport paperback. Senate investigators had spent a year looking into the London-based banking group HSBC, and discovered that it was awash in skulduggery. According to the three-hundred-and-thirty-four-page report, the bank had laundered billions of dollars for Mexican drug cartels, and violated sanctions by covertly doing business with pariah states. HSBC had helped a Saudi bank with links to Al Qaeda transfer money into the United States. Mexico’s Sinaloa cartel, which is responsible for tens of thousands of murders, deposited so much drug money in the bank that the cartel designed special cash boxes to fit HSBC’s teller windows. On a law-enforcement wiretap, one drug lord extolled the bank as “the place to launder money.”

With four thousand offices in seventy countries and some forty million customers, HSBC is a sprawling organization. But, in the judgment of the Senate investigators, all this wrongdoing was too systemic to be a matter of mere negligence. Senator Carl Levin, who headed the investigation, declared, “This is something that people knew was going on at that bank.” Half a dozen HSBC executives were summoned to Capitol Hill for a ritual display of chastisement. Stuart Gulliver, the bank’s C.E.O., said that he was “profoundly sorry.” Another executive, who had been in charge of compliance, announced during his testimony that he would resign. Few observers would have described the banking sector as a hotbed of ethical compunction, but even by the jaundiced standards of the industry HSBC’s transgressions were extreme. Lanny Breuer, a senior official at the Department of Justice, promised that HSBC would be “held accountable.”

What Breuer delivered, however, was the sort of velvet accountability to which large banks have grown accustomed: no criminal charges were filed, and no executives or employees were prosecuted for trafficking in dirty money. Instead, HSBC pledged to clean up its institutional culture, and to pay a fine of nearly two billion dollars: a penalty that sounded hefty but was only the equivalent of four weeks’ profit for the bank. The U.S. criminal-justice system might be famously unyielding in its prosecution of retail drug crimes and terrorism, but a bank that facilitated such activity could get away with a rap on the knuckles. A headline in the Guardian tartly distilled the absurdity: “HSBC ‘Sorry’ for Aiding Mexican Drug Lords, Rogue States and Terrorists.”

In the years since the mortgage crisis of 2008, it has become common to observe that certain financial institutions and other large corporations may be “too big to jail.” The Financial Crisis Inquiry Commission, which investigated the causes of the meltdown, concluded that the mortgage-lending industry was rife with “predatory and fraudulent practices.” In 2011, Ray Brescia, a professor at Albany Law School who had studied foreclosure procedures, told Reuters, “I think it’s difficult to find a fraud of this size . . . in U.S. history.” Yet federal prosecutors filed no criminal indictments against major banks or senior bankers related to the mortgage crisis. Even when the authorities uncovered less esoteric, easier-to-prosecute crimes—such as those committed by HSBC—they routinely declined to press charges.

This regime, in which corporate executives have essentially been granted immunity, is relatively new. After the savings-and-loan crisis of the nineteen-eighties, prosecutors convicted nearly nine hundred people, and the chief executives of several banks went to jail. When Rudy Giuliani was the top federal prosecutor in the Southern District of New York, he liked to march financiers off the trading floor in handcuffs. If the rules applied to mobsters like Fat Tony Salerno, Giuliani once observed, they should apply “to big shots at Goldman Sachs, too.” As recently as 2006, when Enron imploded, such titans as Jeffrey Skilling and Kenneth Lay were convicted of conspiracy and fraud.

Something has changed in the past decade, however, and federal prosecutions of white-collar crime are now at a twenty-year low. As Jesse Eisinger, a reporter for ProPublica, explains in a new book, “The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives” (Simon & Schuster), a financial crisis has traditionally been followed by a legal crackdown, because a market contraction reveals all the wishful accounting and outright fraud that were hidden when the going was good. In Warren Buffett’s memorable formulation, “You only find out who is swimming naked when the tide goes out.” After the mortgage crisis, people in Washington and on Wall Street expected prosecutions. Eisinger reels off a list of potential candidates for criminal charges: Countrywide, Washington Mutual, Lehman Brothers, Citigroup, A.I.G., Bank of America, Merrill Lynch, Morgan Stanley. Although fines were paid, and the Financial Crisis Inquiry Commission referred dozens of cases to prosecutors, there were no indictments, no trials, no jail time. As Eisinger writes, “Passing on one investigation is understandable; passing on every single one starts to speak to something else.”

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One morning in February, 1975, a fifty-three-year-old businessman named Eli Black took the elevator to the forty-fourth floor of the Pan Am Building, in Manhattan. When he was alone in his corner office, Black slammed his attaché case into one of the big windows overlooking the city until the glass broke. Then he jumped out. Black was the chairman of United Brands, a multibillion-dollar conglomerate. After his death, friends speculated that he had been working too hard, but an alert investigator at the Securities and Exchange Commission, Stanley Sporkin, grew suspicious, noting that people don’t just “drop out of windows for no reason.” Black, it emerged, had become embroiled in a bribery scheme. United Brands owned Chiquita, and in exchange for a reduction of the export tax on bananas Black had authorized a two-and-a-half-million-dollar bribe to the President of Honduras.

“White-collar crime,” in the definition of the sociologist who coined the term in the nineteen-thirties, is “committed by a person of respectability and high social status in the course of his occupation.” Eli Black fit the criteria. But he was dead. Sporkin, determined to secure justice, enlisted a young federal prosecutor in New York, Jed Rakoff, who devised a clever work-around: charge the whole company. Under U.S. law, it was technically possible to hold a company responsible for the actions of a single employee.

With their inventive legal minds and their tenacious pursuit of malefactors, Sporkin and Rakoff are two of the heroes in Eisinger’s deeply reported account. United Brands ended up pleading guilty to conspiracy and wire fraud, and though it got off with a token fine of fifteen thousand dollars, Congress later cited the case when it passed the Foreign Corrupt Practices Act, in 1977. Before the United Brands scandal, prosecutors tended to go after white-collar crimes by indicting the executives who committed them; now they charged the firms themselves. But the notion of prosecuting a corporation raises a number of tricky questions. A company, as an eighteenth-century British jurist once remarked, has “no soul to be damned, and no body to be kicked.” Corporations can own property, sue people and be sued, even assert First Amendment rights. But you can’t put a corporation in jail. So you impose a fine. The trouble is that the employees responsible don’t pay the fine: if the company is publicly traded, the shareholders do. These individuals may have benefitted from the felonious conduct if it inflated the value of their stock, but they are innocent of any crime.