Congressional re-election through symbolic politics: the enhanced banking crime penalties.

Author:FitzPatrick, Brian T.
 
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Brian T. FitzPatrick(*) "Put the S&L Crooks in Jail" I. Introduction II. Background of Banking Crime Penalties

  1. Pre-1984

  2. CCCA 1984

  3. FIRREA 1989

  4. CCA 1990

  5. Comparison III. The Legislation

  6. Congressional Rationale for CCA 1990's Penalties

    1. Announced Reason: More Jail Time

    2. Alluded-to Reason: Re-election

  7. The Merits

    1. Delayed Impact

    1. Ex Post Facto Clause

    2. Practical Impediments IV. Symbolic Politics

  8. The Concept

    1. Something is Being Done

    2. About Crime

  9. Symbolic Politics in Election Year 1990

    1. Reassurance and Re-election

    2. Nonaberration

  10. Symbolic Politics in a Representative Democracy

    1. Abdication

    1. Deliberative Approach

    2. For the Common Good V. Conclusion

    1. Introduction

      Noted criminal law scholar Andrew von Hirsch advises disbelief of those promising that sentencing measures can effectively reduce the incidence of crime.(2) His cautioning is chiefly based on the limited capacity of punishment to control crime.(3) While generally accepting punishment's limitations, this article explores the motives of our national legislators who, in election years, trumpet heightened sentencing measures of questionable effectiveness.(4) Indeed, Congress's ratcheting-up of prison terms during election years now appears quasi-reflexive.(5) The enhanced banking crime penalties in the Crime Control Act of 1990 ("CCA 1990")(6) present a stark case in point.(7) Those penalties remain the state of the law today.(8)

      Maximum prison terms for general banking crimes have increased sixfold in recent years.9 Prompted by the S&L crisis,(10) the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA")(11) raised the two-to-five year maximum sentence to twenty years.(12) Just sixteen months later, CCA 1990(13) added ten years to reach thirty-year law on November 29, 1990.(23)

      Following so fast on FIRREA's heels,(24) CCA 1990's stringent sanctions raise obvious questions: Was there a demonstrated (or any) need for CCA 1990's heightened penalties to achieve the traditional criminal law goals of retribution and deterrence?(25) Or, as Senator D'Amato's comments suggest, did more elemental politics significantly drive the escalation?

      To address these questions, Part II sets forth the background of banking crime penalties. Looking chiefly to the 1990 hearings and debates, Part III presents Congress's reasons (announced and alluded to) for the increased sanctions, and analyzes their underlying merit. To further illuminate the legislative dynamics producing CCA 1990's sanctions, Part IV analyzes CCA 1990 as an exercise in symbolic politics,(26) and suggests that such symbolic legislation had recent precedent. Lastly, part IV provides a normative perspective by evaluating the passage of generally symbolic legislation, such as CCA 1990, against the constitutional theory of our representative democracy.

      Part V concludes that any perceived bona fide need for more punishment played, at best, a supporting role in enacting CCA 1990's sanctions. Contrary to constitutional theory, re-election concerns, instead, appear to have carried the lead in legislating CCA 1990's largely gratuitous penalties. As with other symbolic legislation, the consequence is that national problems are not meaningfully engaged. To set the stage for this analysis, the background of banking crime penalties will now be briefly recounted.

    2. BACKGROUND OF BANKING CRIME PENALTIES

  11. Pre-1984

    Federal sanctions for banking crimes originated with the National Banking Act of 1863 and its 1864 replacement.(27) Each act had a single provision directed at insiders.(28) Misapplication, embezzlement and false entries were proscribed.(29) Convictions carried a maximum ten-year prison sentence.(30)

    Twentieth century evolution was slow. In 1913, the bank bribery statute was enacted carrying a misdemeanor penalty of a year or less.(31) In 1948, finding the National Banking ACt statutory scheme too dense, Congress broke it down, creating 18 U.S.C. [sections] 656 for misapplication and embezzlement, and 18 U.S.C. [sections] 1005 for false entries.(32) The penalties were reduced to a maximum of five years imprisonment.(33) In 1970, Congress extended 18 U.S.C. [sections] 1014 by criminalizing false statements to federally insured institutions.(34) The maximum term was set at two years.(35)

    Consistent with Congress's semi-desultory regard prior to 1984, the Department of Justice ("DOJ") assigned "lower priority" to bank fraud prosecutions.(36) statutory shortcomings were among the reasons; DOJ deemed penalties too insubstantial to justify the expense of "lengthy investigations and trials."(37) Further, the aged, technical statutes were proving ineffective in netting some latter-day financial schemes. The House Government Operations Committee pointed to the misapplication-embezzlement statute as an example:

    Section 656 ... fails to cover many ... schemes typically involved in

    modern bank fraud. Consequently, insiders . . . are often charged with . . .

    technical violations of other statutes, such as making false statements to a

    bank examiner. Juries often find it difficult to convict on technical

    grounds when more substantive misconduct is involved.(38)

    The bank bribery statutory scheme(39) needed similar fortifying.(40) Its plain language caught the insider recipient, but neither the briber nor one involved in a kickback transaction.(41) The subject financial institutions were limited; for instance, S&Ls were excluded.(42)

    In this vein, two United States Supreme Court rulings illustrate (and partly account for) statutory shortcomings. In United States v. Maze,(43) the Court curtailed the use in banking prosecutions of the ostensibly broad mail fraud statute.(44) The Supreme Court held that in a fraudulent credit card scheme the government had to prove that using the mails was " ,for the purpose of executing . . . the scheme" " and not merely incident thereto.(45) In Williams v. United States,(46) the Court held that since a check was not a statement, the false statements statute could not be employed in prosecuting check-kiting.(47) In general, the pre-1984 banking crime statutes did "not satisfactorily address the types of twentieth century schemes uncovered in modern bank fraud investigations."(48) Dramatic change was forthcoming.

  12. CCCA 1984

    The banking crime provisions of the Comprehensive Crime Control Act of 1984 ("CCCA 1984")(49) were triggered by prosecutors, dissatisfaction with outdated laws. Among other remedial changes, prosecutors sought a catchall statute.(50) Failure of financial institutions in the 1970s and early 1980s also precipitated inclusion of the banking crime provisions.(51) The House Government Operations Committee asserted that of the seventy-five commercial bank failures between January 1980 and July 1983, about fifty percent were "caused, in large part, by the criminal misconduct of" insiders.(52)

    CCCA 1984's principal responses were threefold. First, CCCA 1984 included the bank fraud statute,(53) which was patterned after the elastic mail and wire fraud statutes (for example, similarly proscribing a "scheme . . . to defraud").(54) In 1989 (prior to the penalty increases), John K. Villa contrasted the banking crime area before and after the bank fraud statute's enactment:

    You could not prosecute a banker unless you could fit him into one of the

    pigeonholes of the then-existing Federal criminal laws.... [I]t changed in

    October 1984 . . . at which time Congress . . . enacted a comprehensive

    bank fraud statute....

    This statute can reach virtually every ... fraud against a financial

    institution by insiders, outsiders, independent contractors--anybody. It is

    a 5-year felony. If there are multiple transactions ... you could have

    multiple counts. So 5,10,15,20 years is the potential exposure.... It is a

    broad and very effective statute.(55) So viewed, the bank fraud statute with its flexible sweep offered "an elegant solution to [prosecutors,] long-standing complaint" of being "forced to stretch outmoded statutes to combat sophisticated fraudulent schemes."(56)

    Second, CCCA 1984 reconfigured the bank bribery statutory scheme to envelop bribers, any banking transaction (not only loans), and more financial institutions--including S&Ls.(57) Regarding prosecutors, complaints about light penalties, the sanction was upgraded from a misdemeanor with a one year maximum to a felony with a five year maximum.(58) Third, the Sentencing Reform Act ("SRA")(59) was a component of CCCA 1984. Although not specifically directed at banking crime, SRA will eventually affect nearly all convictions.(60) Pursuant to SRA, the Sentencing Guidelines have been promulgated.(61) The Sentencing Guidelines for individuals have been in effect since 1987.62 For white-collar defendants, the Sentencing Guidelines have worked a sea change; jail time and longer sentences are likely.(63) The Sentencing Guidelines for organizations, including financial institutions, have been in effect since 1991.(64) In a worst case scenario, an organization's fine could be astronomical.(65) Along with other possible discounts

    however, a good faith compliance program (despite not having prevented the wrongdoing) "can reduce the applicable fine range by millions."(66)

    In brief, CCCA 1984 unleashed exceptional legislation into the languor of banking crime law. The expansive bank fraud and reworked bribery statutes addressed prosecution-hampering deficiencies. More generally, SRA rang in harsher sentencing. The ringing would soon get louder for banking crime defendants.

  13. FIRREA 1989

    FIRREA was the initial, extensive response to the S&L crisis.6, Part of that response was directed at fraud.68 Early governmental estimates cited insider fraud as the cause of twenty-five to one hundred percent of the thrift failures.(69) The high-end estimates are suspect, given the conspicuous presence of economic, regulatory, and political factors.(70) Taking a concordant view, the 1993 report by...

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