Academic journal article Law & Society Review

The Differential Management of Financial Illegalisms: Assigning Responsibilities in the Libor Scandal

Academic journal article Law & Society Review

The Differential Management of Financial Illegalisms: Assigning Responsibilities in the Libor Scandal

Article excerpt

For more than a decade now, the financialization of capitalism (Krippner 2011; Van der Zwan 2014) has been the locus of many critiques. Financialization has been studied sufficiently to understand how much finance has invaded our daily lives (Martin 2002), without measuring necessarily fully its ramifications. The clear causality between the rise of wages in the financial sector and the rise in income inequality in the United Kingdom (Bell and Van Reenen 2013), the United States (Volscho and Kelly 2012), and France (Godechot 2012) has put the financial sector on the spot. With the related emergence of the "1 percent," the Occupy Wall Street movement also targeted the financial sector, and "We are the 99 percent" resonated close to the stock exchanges of key financial centers, such as Zuccotti Park in New York, La Defense in Paris, and London's financial district.

In particular, the extent of fraud in the financial industry has been a heated topic of public debate. For instance, the National Commission on the Causes of the Financial and Economic Crisis in the United States, established by President Barack Obama in 2009, in its report expressed no doubt regarding the existence of fraud in the financial sector during the 2000s. The report

catalogues the rising incidence of mortgage fraud, which flourished in an environment of collapsing lending standards and lax regulation. The number of suspicious activity reports- reports of possible financial crimes filed by depository banks and their affiliates-related to mortgage fraud grew 20-fold between 1996 and 2005 and then more than doubled again between 2005 and 2009. (National Commission on the Causes of the Financial and Economic Crisis in the United States [NC] 2011: xxii)

As this report makes clear, financial fraud has been, to some extent, publicly recognized. However, despite this recognition, it seems that financial scandals continue to occur and fraud keeps happening, without generating a broader questioning of finance that could have a substantial effect on the legitimacy of financial capitalism.

How, in a historical situation characterized by a financial crisis and strong critiques of finance, are financial institutions able to remain legitimate? This paper adopts a sociological approach to this question by dissecting the contribution of law in protecting the legitimacy of financial capitalism. It argues that the assignment of responsibilities between individuals and organizations plays a key role in this matter. When courts and agencies charge and sometimes sanction financial fraud, they indeed decide which responsibilities go to individuals on one side, and which ones go to organizations on another. In the Foucauldian perspective adopted in this paper, such an assignment is conceived as an instrument for managing financial fraud, hierarchizing its forms and, ultimately, restraining the public discussion of financial scandals.

Different kinds of legal action against such fraud can indeed be discerned, between legal action targeting individuals and that targeting organizations, as recent examples illustrate. Regarding individuals, criminal prosecutions have focused primarily on traders: the Kerviel-Société Generale affair in France (Kerviel 2010), the trials against Kweku Adoboli (R v Adoboli 2012) and against Tom Hayes (R v Hayes 2015) in the United Kingdom, or the trial against Fabrice Tourre (SEC v Tourre 2010, a civil case) in the United States. These prosecutions mostly targeted individuals in mid-level positions, frequently those who had climbed remarkably quickly but were yet far from occupying the highest positions.1 Indeed, no CEO or board member has been subject to criminal prosecution since the financial crisis (Rakoff 2014; Pontell, Black and Geis 2014).

Financial organizations have certainly been sanctioned but none has been subject to a criminal trial. Instead, the prevailing logic in the responses to the illegalisms of financial organizations is the settlement (Serverin, Lascoumes and Lambert 1987; Garrett 2014, 2016). …

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