The Department of Justice finally wants to eliminate “piling on” by enforcement agencies.
In a speech on May 9, Deputy Attorney General Rod Rosenstein called out his own agency — and referenced the Securities and Exchange Commission, the Federal Reserve Board, the Comptroller of the Currency and the Federal Deposit Insurance Corp. — in announcing DOJ’s intention to encourage coordination among enforcement agencies to discourage “unfair duplicative penalties” caused by the “disproportionate enforcement of laws by multiple authorities.”
That is about as nicely as he could have possibly described the wasteful duplication of resources that often arises when multiple federal and state authorities race after the same business behavior.
As perhaps the most highly regulated businesses in America, banks have long been vocal advocates against regulatory “piling on.” Since the Financial Institutions Reform, Recovery and Enforcement Act became law in the wake of the savings and loan crisis in 1989, a dizzying array of new laws have multiplied the number of federal agencies that have enforcement jurisdiction over banks. A variety of state attorneys general and regulatory agencies may also assert their jurisdiction, creating a kaleidoscopic collage of competing governmental authorities all chasing the same target.
No one in their right mind would devise this regulatory enforcement structure today. In many high profile investigations involving large financial institutions, it is not unusual for parties to be subpoenaed, investigated, sanctioned and/or fined by an alphabet soup of federal agencies, including the SEC, Fed, OCC, FDIC, Consumer Financial Protection Bureau and DOJ’s Civil Division. If there is a simultaneous criminal investigation, it takes precedent, complicating nearly every aspect of the many civil investigations, further reducing the possibility of an efficient global settlement among the parties. These regulatory feeding frenzies often backfire, leaving federal or state authorities feeling one-upped by each other. Rosenstein hit the nail on the head when he said that parallel investigations by multiple agencies can “sound less like singing in harmony and more like competing attempts to sing a solo.”
“Piling on” has not been reserved just for large banks. It has also become common in the case of failed bank investigations, which more often than not involve regional and community banks. Former executives may become the subject of investigations by the FDIC acting as receiver for the failed bank, only to find that separate investigations have been initiated by the FDIC’s enforcement division, or those of the Fed, the OCC and the SEC. Multiple depositions of the same executives by different agency lawyers plowing over the same ground is not uncommon.
Kudos to the DOJ for taking this issue on, particularly since it has itself been one of the offending agencies. It forged an enforcement role for itself over banks after the last financial crisis by asserting that FIRREA gave it authority to assert massive mortgage-backed security claims against federally insured banks, arguing, in effect, that the banks had defrauded themselves. However, various mortgage-backed security claims were also asserted by the federal banking agencies, including the FDIC on behalf of failed banks and the Federal Housing Finance Agency on behalf of Fannie and Freddie.
There is no question, as the deputy attorney general said, that culpable individuals should be identified and held accountable through effective civil and criminal enforcement mechanisms. But the current trend of “piling on” is an unnecessary waste of taxpayers’ money.
Yet while attempts to address this problem by the DOJ are indeed a welcome breath of fresh air, setting up working groups and adding new policies to the U.S Attorneys’ Manual — as Rosenstein suggested — is not going to solve the problem. There are too many overlapping laws, too many federal and state agencies involved and too many of them chasing the same press release.
No matter how egregious the behavior of a financial institution, a bevy of federal and state agencies is not necessary to redress the wrong. Congress needs to fix this problem by reducing the number of regulatory agencies with concurrent jurisdiction and require a process that creates a lead agency in enforcement investigations. Of course, a reduction in the number of agencies would also do the trick.
