Many prosecutors now believe that imposing stiff penalties on companies for noncompliance will turn shareholders against the company, and may help act as a crime deterrent to white-collar crimes.
These types of penalties are different from the current strategies that are being employed by the Justice Department and the Federal Bureau of Investigation. Typically, in white-collar crimes, both the Justice Department and the Federal Bureau of Investigation seek penalties in the form of hefty prison terms. Over the past decade alone, we have seen a number of white-collar criminals convicted of securities fraud, investment fraud and other types of white-collar crimes, and sentenced to dozens of years in prison. Some of those terms mean that these persons will die in prison.
However, now the growing line of prosecutorial thinking holds that these hefty prison terms may not be an effective deterrent to white-collar crimes. The Wall Street Journal recently noted that Citigroup agreed to pay $7 billion to settle an investigation that was probing possible mortgage non- compliance at the company. Prosecutors now are increasingly using large, billion-dollar settlements deter the company from non-compliance.
When these companies pay large amounts of money to settle such investigations, it affects their bottom line and their stock prices. That incenses shareholders, who are then much more likely to call the company to account for its failure to comply with federal regulations. These shareholders are not likely to be up in arms as much when senior executives at the company are sentenced to lengthy prison terms.
Prosecutors now admit that they're looking at extracting multibillion dollar fines from financial institutions including Citigroup in an attempt to deter other companies from wrongdoing. They believe that angry shareholders are the biggest deterrent.