Since the financial crash, the federal government’s key enforcement agencies have sent a
message to the largest financial institutions that they are “too big to jail” and somehow
above the laws that apply to every other entity and individual in America.
Rather than enforcing penalties that would have real deterrent effects, enforcement
agencies have relied almost exclusively on settlements as a punitive measure. As a
result, banks like JP Morgan Chase, Citigroup, Barclays, UBS, and the Royal Bank of
Scotland have continued to break the law, because they know that they will face nothing
more than a slap on the wrist—a fine paid with shareholder money that can often be
deducted from their taxes as a business expense.

Require Law-Breaking Banks and their Executives to Admit Guilt, Face Real
Consequences

While the DOJ and SEC have touted the large fines they’ve imposed on law-breaking
financial institutions, they have failed to implement any policies that will serve as real
deterrents against continued law-breaking.

Governor O’Malley will:

• Implement Points Accrual System to Crack Down on Recidivist Banks. The
largest banks have been able to get away with repeated violations of the law because
the only penalty they have faced has been fines. Governor O’Malley will implement a
DMV-style points-accrual system that will assign points to infractions committed by
financial firms and their affiliates. He will make the points system fully transparent—
so that employees, creditors, and investors all have access to them and can make
decisions based off them—and have the end result be the revocation of an entity’s
right to operate. This approach will send a strong message to institutions that racking
up repeat violations of the law will have real consequences, and it will give them the
opportunity to pursue course-correcting measures if they rack up points. To further
deter wrongdoing, each major fraud or violation could come with its own penalties,
through increased FDIC insurance premiums or increased capital requirements.

• End Days of “Neither Admit Nor Deny.” The SEC continues to allow institutions
that break the law to avoid admitting guilt for their actions. If an institution commits a
major crime or violation of a law, they should be required to admit their guilt, so that
they face the full ramifications of parallel civil and criminal proceedings.

Reduce Reliance on and Increase Transparency Around Agreements Made With
Law-Breaking Firms

Rather than pursuing criminal cases or even forcing law-breaking institutions to face the
full force of the law, the DOJ and SEC have adopted policies—often decided behind
closed-doors—that allow law-breakers to skirt accountability.

Governor O’Malley will:

• Require Transparency Around Use of Deferred Prosecution Agreements
(DPA’s) and Non Prosecution Agreements (NPA’S). Currently, the DOJ relies
heavily on deferred prosecution agreements and non-prosecution agreements with
companies who have broken the law. Under these agreements, companies are
permitted to avoid prosecution and real accountability for illegal activity.

Governor O’Malley will incorporate requirements to change senior leadership as part
of DPA agreements, while also requiring the DOJ to submit a report explaining in
detail the rationale for any DPA or NPA involving any significant economic crimes,
including in particular why a DPA or NPA wasn’t used for similar crimes or matters.

• Crack Down on SEC’s Use of Waivers By Requiring Public Votes, Statements on
Them. Currently, the SEC has wide berth to grant “waivers” to financial institutions
that break the law. These waivers allow law-breaking banks to avoid penalties that
come with their violations. To crack down on this process, I will require the SEC to
adopt strict procedures by which they can grant waivers. SEC Commissioners should
be required to publicly vote on waivers given to too-big-to-fail banks, and require
them to publicly state the reasons for their votes in detail.