“No fault” fines make mockery of rule of law

Yesterday, the new chairman of the Securities and Exchange Commission Mary Joe White testified on Capital Hill in defense of “no admission of fault or wrong-doing” settlements for companies and individuals in the financial sector on the grounds of expediency. She repeated the well-worn justification that it allows the government to quickly return money to harmed investors without the need for a trial.

But there is a huge social cost to the approach which far outweighs the benefit of any expedited resolution. It enables a culture of flagrant abuse and lawlessness in the financial sector, where actors repeatedly break laws and pay fines as an incidental cost of doing business. Moreover, “no fault” resolutions provide no public disclosure of facts nor stigma attached to the offenders. This means that they are free to repeatedly breach laws and rules of conduct while enjoying continued status in the community along with unfettered access and marketability to the public. The public is left unaware and vulnerable to an unscrupulous industry that holds itself out as honest advisers. This is a major breach of public trust. Without an admission of fault there is also no hope of deterrence or repentance by the perpetrators. They can rationalize their conduct as acceptable and legal–the industry norm. They can continue as usual, raking in handsome financial rewards for their conduct.

For the purposes of deterrence and public protection it is essential that those found breaking the law admit their fault before they are allowed to pay a fine and settle charges. This is a critical element of the justice system. It is the only hope for personal accountability and restoring any semblance of equality before the law, so crucial to democracy.

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