US Capitol. Photo by Lois Kapila

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America is sometimes thought by people in Ireland to exercise a “zero-tolerance” approach to white-collar crime. Before he became an attorney for President Trump, Rudy Giuliani was the US Attorney for the Southern District of New York and made a name for himself when he prosecuted corporate financiers in the 1980s.

Under Giuliani’s watch, white-collar criminals were “perp-walked” in handcuffs by uniformed officers through public places so they could be photographed by journalists. Sentences for white-collar crime are famously severe in the US: Bernie Madoff received a 150-year prison sentence for his role in a massive $65 billion Ponzi scheme.

These actions are highly expressive and symbolic. They condemn white-collar crimes as shared injuries against the community, serve to reinforce the common sense of right and wrong in society, and aim to deter others from committing similar crimes. Others have suggested the high-profile media coverage of perp-walks and punishments are merely a form of “infotainment”.

Nevertheless, in Ireland, when politicians want to appear tough on white-collar criminals, they invoke American comparisons and references to shore up their credentials. As noted previously in this column, Leo Varadkar, for example, recently called for an “Irish FBI” to tackle corporate wrongdoing in the wake of the directed acquittal of Seán FitzPatrick, former CEO and chairman of Anglo Irish Bank.

In fact, however, the American tendency to be tough on white-collar crime may be overstated.

Only one banker in the US has been successfully prosecuted for misconduct associated with the financial crisis. In 2013, Kareem Serageldin, an Egyptian-born trader for Credit Suisse, was sentenced to 30 months in prison for his part in hiding hundreds of millions of dollars in losses in mortgage-backed securitiesat the height of the financial crisis.

Others within Credit Suisse and in other financial institutions had engaged in similar or worse conduct, writing down losses for billions more than they had previously admitted. Sentencing Serageldin, who pleaded guilty to one count of conspiracy to falsify books and records, Judge Alvin K. Hellerstein acknowledged that it was “a small piece of an overall evil climate within the bank and with many other banks”, the New York Times reported. Nevertheless, his activities earned Serageldin the dubious distinction of being the only banker to go to jail for playing a part in the 2008 financial crisis in America.

Some suggest that these kinds of white-collar cases are complex and difficult to explain to juries, so politically savvy attorneys in the US Department of Justice are wary of pursuing prosecutions. They do not want to sully their reputations by losing these difficult cases.

Prosecutors have reason to be cautious in such cases. One of the first major prosecutions for misconduct leading to the financial crisis was unsuccessful.

The US Attorney for the Eastern District of New York prosecuted Ralph Cioffi and Matthew Tannin, two hedge-fund managers at Bear Stearns, for inflating the sizes of their portfolios. The company collapsed in 2007 and caused a loss of $1.6 billion to investors, an event that was considered “the canary in the coal mine of the financial crisis”.

In the aftermath of that collapse, the two men were prosecuted for securities fraud, wire fraud, and conspiracy. Additionally, Cioffi was prosecuted for insider trading for transferring millions of his own money out of the Bear Stearns account to a better-performing account. In 2009, the jury acquitted the men on all charges.

Similarly, a civil case for misleading investors was unsuccessfully taken against Brian Stoke, a former Citigroup manage in 2012. Citigroup bundled mortgages together into tradeable financial assets known as “collateralized debt obligations” and sold them to its clients, but it had also taken short positions against these bundles, betting that the CDOs would fail. Though declining to impose liability in this case, the jury took the unusual step of issuing a statement to encourage the state to continue pursuing financial wrongdoing in appropriate cases.

Meanwhile, Ireland has demonstrated no such reluctance, nor has it needed such encouragement from juries. It has successfully secured convictions against quite a number of former senior bankers for a range of offences, including those related to providing illegal assistance for the purchase of the bank’s shares, fraudulent trading, conspiracy to defraud investors, and false accounting.

The cases have been painstakingly investigated over long periods – and, with the obvious high-profile exception of the case against FitzPatrick – they appear to have been carefully prepared. In addition, while it is impossible to know what happens while juries secretly deliberate, Irish juries have neither demonstrated any particular difficulties understanding complex corporate evidence, nor shown any reluctance to convict as they deem fit.

The Irish experience of addressing white-collar criminality has clearly not been perfect, but Irish politicians that valorise the American experience after the financial crisis mistakenly think faraway hills are greener.

Joe McGrath

Joe McGrath is a law lecturer at UCD specialising in corporate and white-collar crime. He is also Dublin Inquirer's white-collar crime columnist.

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