:format(webp)/cdn.vox-cdn.com/uploads/chorus_image/image/63346451/1139755555.jpg.0.jpg)
Just one big bank executive went to jail after the 2008 financial crisis. The CEO of Wells Fargo and his successor walked away from the megabank with multimillion-dollar pay packages after it was discovered employees had created millions of fake accounts. The same goes for the Equifax CEO after its data breach.
Sen. Elizabeth Warren wants that to change. Instead of these executives slinking away after the companies they run get caught behaving badly — or sticking around without consequences — she wants them to go to jail.
The Massachusetts Democrat and 2020 presidential contender on Wednesday rolled out the Corporate Executive Accountability Act, new legislation that would up the accountability of corporate leaders for their firms’ misdeeds, whether or not they personally approved of the actions that broke the law. The bill builds on existing laws to include negligent executives of corporations with more than $1 billion in revenue and says that if they or the companies they run engage in bad behavior, they go to jail for a year.
This legislation complements the Ending Too Big to Jail Act, which Warren introduced in 2018 and is reintroducing again this Congress. That proposal would require the CEOs of big banks to certify that nothing illegal is happening under their watch and create a permanent governmental investigative unit to look into financial crimes.
“They presumably will make it easier for prosecutors to hold bankers and other corporate executives who are guilty of misconduct to account in the courts,” Bart Naylor, a financial policy advocate at the watchdog group Public Citizen, which is backing both bills, told me.
In a Washington Post op-ed on Tuesday evening, Warren laid out the case for her legislation. “If top executives knew they would be hauled out in handcuffs for failing to reasonably oversee the companies they run, they would have a real incentive to better monitor their operations and snuff out any wrongdoing before it got out of hand,” she wrote.
It’s been 10 years since the financial crash cost millions of people their homes, jobs, and savings. But not one big bank CEO has gone to jail. It’s time to reform our laws to make sure that corporate executives face jail time for overseeing massive scams. https://t.co/r1KzgaX0Sr
— Elizabeth Warren (@ewarren) April 3, 2019
Warren, 69, is outpacing her fellow 2020 Democratic rivals when it comes to major policy rollouts so far this election cycle. And a lot of her proposals are aimed squarely at corporate America and moneyed interests, whether that means breaking up farming and tech conglomerates, imposing a wealth tax, or overhauling American capitalism and corporate governance.
She has for years railed against the banking industry and corporate interests and originally conceived of the Dodd-Frank financial reform. As a candidate for the White House, she makes Wall Street nervous.
The Corporate Executive Accountability Act, briefly explained
The new legislation Warren introduced would basically make it easier to hold corporate executives accountable for their companies’ wrongdoing. Typically, it’s been hard to prove a case against individual executives for turning a blind eye toward risky or questionable activity, because prosecutors have to prove intent — basically, that they meant to do it.
This legislation would change that, Heather Slavkin Corzo, a senior fellow at the progressive nonprofit Americans for Financial Reform, told me. “It’s easier to show a lack of due care than it is to show the mental state of the individual at the time the action was committed,” she said.
A summary of the legislation released by Warren’s office explains that it would “expand criminal liability to negligent executives of corporations with over $1 billion annual revenue” who:
- Are found guilty, plead guilty, or enter into a deferred or non-prosecution agreement for any crime.
- Are found liable or enter a settlement with any state or Federal regulator for the violation of any civil law if that violation affects the health, safety, finances, or personal data of 1% of the American population or 1% of the population of any state.
- Are found liable or guilty of a second civil or criminal violation for a different activity while operating under a civil or criminal judgment of any court, a deferred prosecution or nonprosecution agreement, or settlement with any state or Federal agency.
Executives found guilty of these violations could get up to a year in jail. And a second violation could mean up to three years.
This doesn’t mean executives could be jailed for anything that goes on in their companies — there has to be a real case to be made that they were negligent or basically should have known about what was going on. But in the example of Wells Fargo, for example, legislation like this being in place could have made a difference. The company had an incentive system that drove workers to create millions of fake accounts and ignored warnings about the matter.
“We’ve just seen case after case where basically the corporation and the shareholders got penalized and admitted wrongdoing, but there is no personal accountability for executives,” Marcus Stanley, the policy director at Americans for Financial Reform, said.
This builds on Warren’s previous legislation
The Corporate Executive Accountability Act builds on the Ending Too Big to Jail Act, which Warren also introduced.
That bill requires executives of banks with more than $10 billion in assets to certify each year that they’ve conducted due diligence and found no criminal conduct or fraud at the institutions they oversee. That would perhaps make it easier for prosecutors to go after such executives if wrongdoing is discovered, because if executives are certifying that all their ducks are in a row but it turns out they’re not, it will be easier to hold them responsible.
It would also create a permanent agency that would investigate criminal activity in all national financial institutions. It would essentially be an expansion of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) created after the crisis to ensure financial institutions that got money from the government used it properly. SIGTARP has actually been successful in punishing financial industry bad actors after the crisis, but its scope is limited, and Warren’s bill would expand it.
Brandon Garrett, a law professor at Duke University, told me he thinks the Ending Too Big to Jail Act might be the more powerful of Warren’s two proposed bills, because enforcers often lack the resources to thoroughly investigate complex corporate and executive conduct, and this would address that.
“Especially with all of the turmoil at the Department of Justice, you just have a lack of enforcement capabilities,” he said.
Through his research, Garrett has found that corporate prosecutions and corporate enforcement at the federal level have declined under President Donald Trump’s administration. He told me that generally, in about only one-third of cases where public companies enter a plea agreement or deferred prosecution agreements, are convicted, or admit there was a crime, people associated with the case are prosecuted.
Pieces of legislation like these would be tough to sell among moderate Democrats, not to mention Republicans. Democrats would have to take back the Senate in 2020 and probably abolish the filibuster to get something like this passed, and even then, there are no guarantees.
Moreover, past administrations have also promised to get tough on financial crimes and corporate America only to soften up once they’re in control. Of course, Warren has bet much of her career on railing against corporations and banks, so this could be different.
Corporate America gets caught behaving badly … a lot
In the wake of the financial crisis, many Americans were outraged at what they perceived as banks getting off easy. Just one major banker, Kareem Serageldin of Credit Suisse, went to jail.
And since then, many actors within the financial industry have kept behaving badly. Wells Fargo has been the subject of a cascade of scandals; Equifax saw a huge data breach and kept it under wraps for weeks.
It’s not just the banking and finance industry. Facebook has undergone scandal after scandal since its inception, ranging from data privacy breaches to disinformation campaigns and beyond. The companies in the pharmaceutical industry that have perpetuated the opioid crisis, and the executives who oversaw them, have barely suffered consequences, either.
For a lot of companies, especially the big ones, breaking the law or acting unethically is just the cost of doing business. Maybe they’ll get a fine and a slap on the wrist, but as long as they’re making enough money, it’s worth it.
Warren’s legislation seeks to curb that behavior, and she’s betting that if there’s a personal threat of going to jail, executives may think twice. The experts I spoke with said they also hope legislation like this would embolden more prosecutors to take up cases in the first place.
“Corporations do not act on their own accord,” Slavkin Corzo said. “So if a corporation was engaged in criminal activity, then clearly there were individuals within the corporation who made those decisions, and those individuals should be held accountable.”
The news moves fast. Catch up at the end of the day: Subscribe to Today, Explained, Vox’s daily news podcast, or sign up for our evening email newsletter, Vox Sentences.
