Our
[Music]
main story tonight concerns crime. Once
again, voted number one by Reasons to
Tiptoe magazine. Specifically, we're
going to talk about corporate crime,
something our current president is
famously not that concerned about. Not
only was he convicted on 34 counts of
falsifying business records, but long
before he was president, CNBC ran a
segment about a law banning American
companies from bribing foreign
governments. or not. Let this
anti-corruption activist pick up the
story from there.
>> I was asked to come on CNBC and give the
anti-corruption
argument. And I remember laughing at the
time saying, "Well, if is there somebody
that you found who's willing to give the
pro-corruption argument?"
>> Now, every other country goes into these
places and they do what they have to do.
Sad part, every other country in the
world is doing it. We're not allowed to.
So, it puts us at a huge disadvantage.
>> Yeah, they clearly got the right guy
there.
I can only assume the producer at CNBC
said to their assistant, "We need
someone willing to give the
pro-corruption argument. Who's the most
unethical person you can think of?" To
which they replied, "Easy, the
Hamburglar." To which the producer said,
"No, wait, what? No, like a real
person." To which they said, "Wait, the
hamburger is not real." To which the
producer said, "Uh, no, he's a fictional
character." To which the assistant
replied, "Well, there goes that dream."
To which the producer said, "What
dream?" To which they said, "Of marrying
the hamburger." To which the producer
said, "I'm sorry, what?" To which the
assistant said, "Let's not talk about
it. How about we get Donald Trump? To
which the producer said, "Oh, that is a
good idea. Are you crying?" To which
they said, "Yeah, sorry. This hamburger
news is just hitting me pretty hard." To
which the producer said, "Did you really
have a crush on a cartoon beef thief?"
To which they replied, "The heart wants
what it wants before storming off to go
cry in the bathroom." Anyway, the point
is, of course, they got Donald Trump to
defend corruption on live TV. And since
taking office, his administration's
halted or dropped more than 100
enforcement actions against corporate
misconduct. And he even issued the first
ever pardon of a corporation, pardoning
this cryptocurrency exchange, which have
been sentenced to a $100 million fine
for violating an anti-moneylaundering
law. It is frankly no wonder experts
have called this moment the ripest
environment for corruption by public
officials and business executives in a
generation. Though to be fair, it's not
like the environment was exactly unripe
before Trump took office. Republican and
Democratic administrations have both
taken a pretty lax approach to corporate
crime for a while now. You might have
noticed stories about corporate
malfeasants rarely end with executives
going to jail or the companies getting
shut down. And tonight's story is going
to focus on a key reason for that.
Deferred prosecution agreements or DPAs.
They're basically an outofc court
settlement for companies to avoid being
prosecuted. Essentially, the government
will come to a company and say, "Hi,
company government here. You did a crime
and we have enough evidence to prosecute
you." But instead of then doing that,
they strike a deal where if the company
behaves itself for a certain amount of
time, the criminal charges eventually
disappear. Sometimes they'll go with an
even weaker option, a nonprosecution
agreement or NPA, which doesn't even
have to be filed in court. Either way,
they're terms that tend to slide past
you whenever you hear them on the news.
>> The Justice Department announcing a
deferred prosecution agreement with Teva
Pharmaceuticals.
>> First Energy entered into what's called
a deferred prosecution agreement.
>> McKenzie has also entered into a
deferred prosecution agreement. Uber has
entered into a nonprosecution agreement
by the Swiss close to finalizing that
deferred prosecution agreement.
>> What's known as a deferred prosecution
agreement?
>> Deferred prosecution agreement.
>> Deferred prosecution agreement. Every
bank on Wall Street has a deferred
prosecution or an NPA. Every bank has
more than one, most likely.
>> It's true. AIG has two NPAs and a DPA.
Barclays has a DPA and an NPA. Credit
Swiss has a DPA. JP Morgan has an NPA
and a DPA. Lloyds has two DPAs. The
Royal Bank of Scotland has a DPA.
Wakovia has a DPA and an NPA. And UBS
has a DPA and two NPAs. And just so you
know, when I say a sentence like UBS has
a DPA and two NPAs, I do hear myself.
I'm fully aware that one day this show
will just be me reading one long acronym
for 40 minutes. We'll have achieved our
perfect form and on that day I'll
finally be allowed to die. But the point
is, these agreements are absolutely
everywhere. Honestly, the only things
more ubiquitous than DPAs on Wall Street
are fleece vests and undiagnosed
sociopaths.
Unfortunately, as you're about to see,
DPAs don't really do much. In fact,
sometimes companies that have done
massive harm have used them to literally
get away with murder. So, given that,
tonight, let's talk about deferred
prosecution agreements, where they came
from, how ineffective they can be, and a
few amazing examples of what they can
look like in practice. Let's start with
the fact that DPAs were never actually
intended to be used on corporations. The
concept grew out of a 1974 law that was
meant to help firsttime and juvenile
non-violent offenders avoid prosecution
so they could focus on rehabilitation.
But that is not how we use them today.
And you can trace the explosion of
corporate DPAs back to one of the most
famous times a large company was
prosecuted in this country, Arthur
Anderson. It was the accounting firm for
Enron whose name is now synonymous with
accounting fraud. Very basically with
the help of Anderson, Enron completely
invented future earnings for itself. And
when the government tried to
investigate, Anderson undertook a
massive document purge during which they
deleted around 30,000 computer files and
emails and at one point shredded more
documents in 3 days than they usually
destroyed in a year. something that
became so famous it was even parodyied
in a Heineken commercial where the
documents became snowflakes and the
tagline was to all those who weren't
naughty this year happy holidays
and just think how remarkable that is. A
beer company thought to themselves, you
know, we could just show off our crisp,
refreshing product in this commercial,
but instead let's give people what they
really want this Christmas and say
you to an accounting firm.
But the thing is,
the Justice Department actually got a
lot of blowback for prosecuting Anderson
because at the time it was a massive
firm with 28,000 employees, many of whom
felt like they'd done nothing wrong.
>> I am Anderson. I am Anderson.
>> After weeks of suffering in silence,
Anderson workers have found their voice.
>> Fight. Stand tall. Don't give up. By the
grace of God, we're going to win cuz
we're Anderson.
Everybody you see out here is worried
about their job right now.
>> We're all being penalized for something
that we didn't have anything to do with.
>> Yeah. Arthur Anderson's employees felt a
range of emotions from resentment to
anxiety to a level of unbridled
exuberance. Best described as Price is
Right contestant who just won a Honda
Civic. And they were right to be
concerned. Anderson being convicted of a
felony meant they lost their accounting
license which for an accounting firm is
generally not great for business. The
company eventually folded. Thousands of
people lost their jobs and many like
this Anderson partner placed the blame
squarely on the government.
>> In the history of the world of business,
this will come out in my judgment as the
largest act of corporate murder ever.
>> Okay, that is a wild overstatement
though because what happened to Anderson
is a lot more complicated than that. The
company had started shedding clients
long before their conviction and the SEC
was already investigating them. So the
truth is Anderson was likely heading out
of business anyway, saying this
prosecution is what doomed Anderson is
like saying that the ground is what
doomed the Hindenburg. Sure, it might
have been the final issue it
encountered, but things weren't exactly
smooth sailing before then.
But after Anderson, prosecutors became
very reluctant to risk putting a company
out of business. And that is when DPAs
became popular. In the decade prior to
Anderson's collapse, DPAs and NPAs had
been used just 18 times. But in the 14
years following, the DOJ entered into
419
such settlements. And the argument for
DPAs is that they prevent innocent
employees from getting hurt, dissuade
future wrongdoing, and still allow the
DOJ to go after individuals. But there
are problems with literally all that.
For starters, nearly half of those
getting deferred and non-prosecution
agreements paid no fine at all. And when
it comes to individuals, in twothirds of
cases, no employees were prosecuted. And
to show you just how glaringly apparent
this system shortcomings can be, we're
going to focus on three companies. GM,
HSBC, and Boeing. We actually talked
about GM all the way back in our first
season. But just in case I wasted my
precious, let's call it youth shouting
at you about things you don't remember,
here is a quick refresher on what the
company did wrong. Last year, GM began
recalling 2 and a half million cars with
ignition switches that could suddenly
shut off the engine, cutting off the
power to the airbags and disabling the
power steering and power brakes, causing
crashes. GM has since determined that
the switches caused accidents that led
to 124 deaths and 273 injuries. Yeah, it
was a wild story. GM sold cars with
faulty switches that could shut off the
engine, steering, brakes, and airbags
despite the fact that they are, and this
is true, some of the key differences
between something being an automobile or
a metal coffin moving at 70 mph. And
there was evidence the company knew
about the problem. In 2008, they showed
their employees a PowerPoint encouraging
them to avoid words like problem,
safety, and defect when writing about
GM's cars and added as a fun joke that
they should also probably stay away from
terms like kavorinesesque, tomblike,
maniacal, or rolling sarcophagus.
And I kind of hope that that just
inspired GM employees to use other
options instead, like the Widow Maker,
Chitty Chitty Smashbang, Final
Destination, The Car, and the Lean Mean
James Dean machine. GM reached a DPA
with the government in 2015, which meant
they didn't have to plead guilty, just
agreed to a statement of facts about
their misconduct. For instance, they
admitted that by early 2012, they not
only knew about the problem, they were
aware of several fatal incidents that
may have been caused by the defective
switch. And while the law required GM to
report such knowledge to the government
within 5 days, it took them
approximately 20 months, which fun fact
is around the length of an elephant's
gestational period. And if writing an
email takes longer than making a
elephant from scratch, there is clearly
something else going on. Now, as part of
GM's DPA, they did have to pay a $900
million fine. And Mary Bar, their then
and current CEO, went to great lengths
to argue that the deal was not letting
them off easy.
>> This is a tough agreement. It further
highlights the mistakes that were made
by certain people in GM and it imposes
significant penalties and obligations.
Okay, but I don't know how significant a
$900 million fine was to a company whose
profits were just under $10 billion that
year. I'm not saying it's nothing, but
9% of one year's profits just doesn't
seem enough for essentially marketing
the automotive equivalent of the Titan
submersible.
Also, while she said mistakes were made
by certain people at GM, notably, no
individuals ended up facing charges for
any part of this. And that's something
extra glawing for people like Candace
Anderson. She lost control of her car in
a crash that killed her boyfriend. And
when GM conducted an internal review of
the accident in 2007, they ruled that
their car was to blame. Unfortunately,
they never told anyone that. Instead,
allowing Candace to plead guilty to
negligent homicide 5 months later.
Thankfully, her conviction has since
been overturned, but the way that she
sees it, that's not nearly enough.
There's someone within General Motors
that should be held responsible.
>> Are you saying that you think
individuals at General Motors should
stand trial?
>> Yeah, I do. They didn't have a problem
sitting by while I was charged.
>> Yeah, I get that. If someone does
something terrible to you, it is
understandable to want them to get a
taste of their own medicine. It's one of
the many reasons why I personally love
to see someone on a pigeon. Yeah,
not so much fun when we do it to you, is
it pigeons?
And look, thankfully GM hasn't killed
any more people with its cars since then
as of taping. But other companies with
DPAs have shown a much greater
propensity for recidivism. And that
brings us to our second example, HSBC. A
few years back, it got in trouble for
allowing Mexican cartels to launder at
least $881 million in drug trafficking
proceeds and facilitating approximately
$660 million in transactions involving
sanctioned regimes like Burma, Iran,
Cuba, and Libya. Here is how bad it was.
At one point, Mexican law enforcement
recorded a cartel leader on a wiretap
saying HSBC was the place to launder
money. And the Sinaloa cartel deposited
so much money in their bank that the
cartel designed special cash boxes to
fit HSBC's teller windows, which is
surprisingly considerate in a way. After
all, who hasn't been stuck in a teller
line behind some guy trying to stuff a
blood soaked duffel full of cash through
the window? Finally, a cartel that
thinks about other people's time.
Now, in response, HSBC put together a
new compliance department, but it wasn't
exactly inspiring, as this man will tell
you. His name is Everett Stern, and he
once had a dream. Tell everyone about
your dream, Everett.
>> Sure. I mean, um I mean, my my my dream
was to join um uh uh the um CIA.
>> Okay, thanks, Everett. That's sounds
like a really nice dream. Unfortunately,
ever got rejected by the CIA, but he did
get hired as a compliance officer at
HSBC, which he was excited about until
he got there.
>> I remember like my first day on the job.
It was It was a shopping center. I It
wasn't like a bank building. I was
expecting to show up at this bank
building and I'm I'm in this suit. There
were all these people like in jeans and
t-shirts and I didn't understand what's
going on. And when I walked in, there
were all these empty cubicles and the
walls were half painted and there were
maybe 15 compliance officers in the
whole department. Uh, at the time I
thought I was like this they hired me
because I was like this smart guy and I,
you know, I had it all going and
everything and no, they hired me because
I was an idiot and I didn't know what I
was doing.
>> Yeah. As far as ever could see, HSBC was
intentionally looking to hire idiots.
And the only time that that is an
acceptable hiring strategy is if you're
casting a baby food commercial. We need
to hire, you know, one of those tiny
idiots who doesn't know what they're
doing. Oh, a baby. Sorry, a baby. That's
the word. We need to hire a baby. And
while HSBC was going through the motions
of compliance publicly, internally, they
were going to egregious lengths to avoid
it altogether. For example, the Treasury
keeps a list of sanctioned organizations
that banks aren't allowed to do business
with. On that list is a company called
Tajko, which has had ties to Hezbollah.
HSBC system should have automatically
flagged any transactions involving
Tajko. And yet, even a self-described
idiot who didn't know what he was doing
could quickly see that the bank was
processing thousands of dollars for
them. And I'll let him describe how he
discovered it and what he did next.
>> I noticed they were putting little dots
and dashes in the actual names in the
wire filter. So for instance, if you had
Tajiko that was sending money from
Hezbollah to some other organization,
instead of T AJCO
in the that that's the normal name for
it in the HSBC wire filter, it would be
T AJ.co
or T AJ-CO.
And that's how they criminally
manipulated the wire filter to allow
moneyaundering for terrorists and drug
cartels. This is why 3 weeks in I
started passing information to the CIA.
yeah you did, Em. yeah you
did. That is great news for him and
frankly terrible news for whoever
thought it was a good idea to hire an
aspiring CIA officer to oversee your
extremely lazy attempts to launder money
for criminals. And once the government
started poking around within HSBC, they
quickly found some pretty compelling
evidence. Internal documents show HSBC
executives knew exactly what they were
doing. "We are allowing organized
criminals to launder their money," wrote
one executive.
>> "Wow, it is hard to imagine how the
evidence could get more damning than
that, unless maybe the email signature
included the phrase sent from my crime
phone followed by the sh emoji." And
yet, incredibly, the government brought
no charges against individuals. The bank
itself just got a DPA and the terms of
it seems more than a little weak. For
example, it agreed to pay a fine of
almost $2 billion, which might sound
like a lot until you remember they made
over 13 billion in profits that year
alone. And look, maybe the DOJ really
thought that a hefty but entirely
manageable fine would make HSBC change
their ways. And the bank did agree to
monitoring and apparently even issued
their US-based staff certificates with
little parrots on them reading, "I am a
changed bird." But were they? Because
even that monitoring program illustrates
something immensely frustrating here
because DPAs aren't criminal
proceedings. Monitoring reports on
whether or not companies are complying
aren't required to be public records.
So, we don't really know what HSBC did
to clean up its act. But the glimpses we
got during that period aren't great. As
in the bank's own annual report, they
openly admitted that their monitor
expressed significant concerns about the
pace of their progress and instances of
potential financial crime. But despite
that, their DPA expired as planned at
the end of 2017 and the government
dropped all charges against them. So
they were in the clear until the very
next month when this happened. HSBC is
said to have agreed to pay $100 million
to resolve a US Justice Department
investigation into the rigging of
currency rates. A source tells Bloomberg
the deal includes a deferred prosecution
agreement and a promise to help with the
criminal case against former traders.
>> Yeah, they were caught again and they
got another DPA. That is ridiculous. At
this point, it's not even a deferred
prosecution agreement. It's more like
prosecutorial edging. I've said it
before and I'll say it again. Let the
government come.
And that is the thing here. DPAs and
their associated fines have now become a
routine cost of doing business, which is
a real problem because the stakes can be
incredibly high. Which brings us to our
final company, Boeing. Last year, we did
a whole segment about its fall from
grace and discuss their infamous 737 Max
planes, which have been involved in two
devastating crashes that killed 346
people. I won't recap the whole thing,
but suffice to say, there were flaws
with the aircraft's design, and they
weren't exactly a secret within the
company.
>> The 737 Max became Boeing's bestselling
jet ever. But in 2017, just as the
planes were taken to the skies
worldwide, a Boeing employee sent this
message to a colleague. This airplane is
designed by clowns, who in turn are
supervised by monkeys. Other employees
calling the design piss poor and
comparing the fixes to patching a leaky
boat. In October 2018, Lionaire flight
610 737 Max crashed, killing 189 people
on board. In May of that year, as Boeing
was pursuing FAA approval for the Max
flight simulator, one test pilot wrote,
"I'll be shocked if the FAA approves
this turd." Yeah, it seems like the only
real disagreement within Boeing was on
what hilarious language to use when
describing their catastrophic products.
Okay, so we got piss poor, leaky boat,
turd. You know what? Can someone get GM
on the phone and see if we can borrow
Kavorianesque from them? I kind of like
the sound of that. Following those
crashes, Boeing entered into a DPA in
2021, admitting to misrepresentations to
regulators about a key software feature
tied to the crashes. should also agree
to pay a fine and show 3 years of good
behavior in exchange for avoiding
prosecution. It's agreement that many
felt was toothless, especially given
that one judge involved with the case
later called what Boeing had done the
deadliest corporate crime in US history.
And following that DPA, things didn't
seem to improve much at Boeing. Because
by the start of 2024, just 2 days before
their three-year probationary period was
set to end, this happened. What was
supposed to be a short trip from
Portland to Ontario, California for
Garrett Cunningham turned out to be one
of the most frightening experiences of
his life.
>> A gush of of air. I look to my left and
part of the plane is gone.
>> Yeah, not ideal. It It is never good
when you feel a sudden gush of air on a
flight. Even if the plane hasn't just
cracked open, odds are it's going to be
the toddler in the seat behind you
breathing directly on your face or your
seatmate cracking the lid on a tub of
tuna salad they brought with them. There
is no surprise whoosh of air that brings
good tidings in a metal sky can. But in
this case, yeah, a door plug blew off a
737 Max mid-flight. An incident that was
a clear indication, according to the
DOJ, Boeing had violated its initial
DPA. But instead of then prosecuting
them, the DOJ offered them a plea deal
which just required them to pay another
fine, boost their spending on safety and
compliance programs, and report to an
independent monitor overseeing their
compliance. And this understandably
angered some of the family members of
crash victims. Here is the mother of one
of them summing it all up.
>> It seems that beginning of January, just
two days before the expiration of the
DPA, oops, I did it again. This is boy
in song. Oops, I did it again.
>> Yeah, that woman's outrage is completely
justified. And it's honestly smart to
site the musical cannon of Britney
Spears given that Boeing essentially
just pleaded not that innocent.
[Applause]
Yeah.
>> But it gets worse because this year the
Trump administration downgraded Boeing's
punishment to a nonprosecution
agreement, removing even the
hypothetical chance of prosecuting them
over this in the future, which is just
completely infuriating. Unless, I guess,
you're this guy on CNBC who chose to
announce the news like this.
>> The DOJ says it expects to file the
written agreement with Boeing by the end
of the week. Should be viewed as good
news. I wouldn't be surprised to see the
stock move higher. Yeah, great news
everyone. The stock should move higher.
So, I guess that's at least one thing
that Boeing can keep in the air.
But, but even if that is good news for
stockholders, it's clearly not great for
anyone else. Because while it means that
Boeing does have to pay out an
additional $444 million into a crash
victim's fund, they also avoid being
branded a convicted felon and will no
longer face oversight by an independent
monitor, but instead will hire a
compliance consultant. As one consumer
rights advocate puts it, this deal isn't
even a slap on the wrist. It's barely a
feather on the wrist. Look, clearly when
it comes to corporate accountability, we
have a problem here. Because a company
engages in flagrant misbehavior, even
putting evidence of it in writing,
people get hurt. They're caught
red-handed. The government finds them
and says, "You better not do that
again." Then they do, and the whole
cycle restarts. This is not sustainable.
And unfortunately, I wouldn't expect any
of that to change for at least say three
and a half years. But but it is worth
asking for a hypothetical future when we
have a government that isn't run by a
procorruption felon. What could we be
doing better to hold corporations
accountable? Well, we could make DPAs
more of a deterrent by making the fines
much more serious and prosecuting
executives a lot more often. We could
also bring both DPAs and NPAs into the
official legal system so that their
monitoring would be more transparent and
companies would build up records of
misconduct instead of constantly getting
to wipe their slate clean. But the hard
truth here is if we want more
accountability, the government is going
to have to show more willingness to
prosecute repeat offenders, even if it
affects a large company's ability to do
business, which really doesn't seem too
much to us because you've seen tonight
just how much damage companies can do
when they operate unchecked. And right
now we have a system where essentially
corporations can with very limited
resistance sell cars with a surprise off
button operate as a haven for blood
money and build planes that unbuild
themselves in the sky. And I'd argue
that to not make significant changes to
a system like that would be, if I may
quote GM's most cursed PowerPoint of all
time, maniacal.