In Corporate Crimes, Individual Accountability Is Elusive


The Department of Justice has filed over 46,000 cases against individuals for mortgage fraud since the Great Recession. Aside from Lee B. Farkas, former Chairman of Taylor, Bean & Whitaker serving a 30-year sentence, all of the other cases have been against low level employees who do not have any name recognition or even any responsibilities for much of their organizations.
from Leom Lime Moon at Blogspot


The main take away is that managers really have no liabilities. The rationale seems to be that managers are not licensed professionals, so they don’t have a higher standard to meet. The main higher standard might be that a lack of knowledge absolves them of accountable because they do not have a professional’s training and certification. How could a non-professional be accountable for knowledge s/he has no knowledge about? A professional would be liable for knowing certain things about their work and if s/he doesn’t know, then the professional is accountable for not doing his/her job correctly.


Here’s my stance on all this. The solution isn’t to prosecute non-professional managers for things they should have known. There is nothing in corporate charters that require managers to be professionals. (Here, I’m using the word professional in the traditional sense, a person who is licensed to practice a certain craft or use certain knowledge.) The solution is to make managing professionals a profession. Currently, banks are managed by people who don’t really know how to operate their own banks; they know how to manage the people who do. But shouldn’t they know how their bank operates? The answer, in my opinion, is “yes.”

So, while I don’t believe that bank holding companies need to be managed by professionals because what is needed at that level is quite different than individual bank units, these individual units should be managed by professionals in and of that field. Projecting out, what will happen in the future with this standard in place would be that future bank holding company executives will be a banker from those units.

A small group of people have argued that bank executives are professionals because almost all of them come from investment banking backgrounds and they hold Series licenses from FINRA. The problem there is that taking away their license to sell securities does not bar them from managing a people who do, let alone other bank units. My solution would solve this for the most part because people will not be allowed to climb the ladder of another bank unit without that license required to practice in that bank unit.

Economically, what will happen is that this will allow large bank holding companies to exist. But this standard will force units to shrink and many more units be created. The pyramid will be at the state-level, and executives will be plucked from those levels. Large national banks may have multi-state regions but those will also be led by former state-level unit managers, making them at least accountable for maintaining the professional standards of one profession. Eventually, the only qualified national bank managers will be people who used to run banks.

About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.

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