NEW YORK (Reuters Breakingviews) — The toughening talk about jailing bosses comes awfully cheap. The U.S. Justice Department is touting new policies to nail people and not just their employers. It's a bit late and also glosses over the real reason for a lack of cases against individuals: they're tough to prove.
Updated guidelines make some useful — if obvious — points. Investigators should focus from the beginning on employees who actually commit the misconduct. Companies don't deserve credit for cooperating without fingering individual wrongdoers. And executives shouldn't be allowed to shift the blame to lowly minions.
Yet the new rules come off as little more than crisis management. Public baying for banker blood after the financial crisis led President Barack Obama in 2008 to create the Financial Fraud Enforcement Task Force. In the 2012 State of the Union address, he announced a financial crimes unit. Last February, his attorney general gave prosecutors 90 days to bring crisis-related cases against individuals. The results: depressingly few convictions of banking bigwigs.
The problem was rarely a lack of effort, though. Prosecutors surely would have loved to bring down the likes of former Countrywide boss Angelo Mozilo. Criminal cases, however, require evidence of intentional wrongdoing beyond a reasonable doubt. That's a high bar, especially when sophisticated executives can argue they followed the advice of lawyers and accountants. It's undoubtedly a big reason why investigations involving Lehman Brothers, IndyMac and others went nowhere.
Enforcers and regulators have plenty of room to improve, though. They could start by curbing the practice of setting aside rules that keep criminals from holding banking licenses or engaging in the securities business. Such waivers rendered guilty pleas from the likes of Citigroup, BNP Paribas and Royal Bank of Scotland essentially toothless.
Prosecutors also could pick their battles more sensibly. The 2009 acquittal of former Bear Stearns hedge fund managers was a predictable embarrassment. The failure to nab a former mid-level Citigroup executive for selling dodgy mortgage securities exposed a weak case. Insider trading convictions grab headlines but don't address most financial misconduct.
Bone-headed bets are, of course, far more common on Wall Street than is criminal wrongdoing. That shouldn't dissuade lawmen from keeping vigilant watch. The C-suite won't be intimidated, though, until they start walking the walk.