Corporate Wrongdoing: Interactions of Legal Mandates and Corporate Culture

36 Review of Banking & Financial Law 207-255 (2016-2017)

St. John's Legal Studies Research Paper No. 17-0002

50 Pages Posted: 29 Mar 2017 Last revised: 3 May 2017

Vincent DiLorenzo

St. John's University - School of Law

Date Written: March 27, 2017

Abstract

In recent years, enforcement officials have imposed billions of dollars in sanctions on all major U.S. financial institutions and many major financial institutions abroad. Similar sanctions have been imposed on nonfinancial institutions. The sanctions are the result of findings of recurrent violations of law, as well as recidivism. Why have existing regulatory standards and enforcement policies led to repeated violations of law? Will the recent billion dollar sanctions deter future wrongdoing?

This article explores these issues by examining the philosophy motivating regulatory policy and action in the United States and United Kingdom, using financial regulators as a case study. This article discusses the interaction between two institutions that influence corporate actors: government and corporate culture. That interaction is examined through the lens of behavioral decision theory and complexity theory. This article draws the conclusion that regulators in the United States continue to be blind to cognitive influences on corporate behavior. Enforcement policy in the United States has ignored the multiple influences on corporate behavior that interact and lead to nonlinear outcomes. The only change made in U.S. enforcement strategy, if any, has been a greater emphasis on large penalties to deter future misconduct. This emphasis continues to reflect a linear, reductionist view of corporate behavior. By contrast, regulators in the United Kingdom have begun to recognize cognitive influences, and are rethinking their enforcement strategy based, in part, on recognition of multiple influences on corporate decision-making. U.S. enforcement policy’s regulatory blindness appears likely to lead to recurring issues of noncompliance.

Keywords: Illegal Behavior, Frauical Institutions, Organizations Behavior, Regulation, Comparative Administrative Law

JEL Classification: D22, D23, G28, K23, K42

Suggested Citation

DiLorenzo, Vincent, Corporate Wrongdoing: Interactions of Legal Mandates and Corporate Culture (March 27, 2017). 36 Review of Banking & Financial Law 207-255 (2016-2017); St. John's Legal Studies Research Paper No. 17-0002. Available at SSRN: https://ssrn.com/abstract=2941665

Vincent DiLorenzo (Contact Author)

St. John's University - School of Law ( email )

8000 Utopia Parkway
Jamaica, NY 11439
United States

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