Admissions of Guilt in Civil Enforcement

Abstract

Should agencies require admissions of guilt from the targets of civil enforcement? Administrative agencies rely heavily on settlement as a key enforcement tool. Admissions of guilt - or, more commonly, declarations that nothing is admitted - form part of these settlement agreements and the underlying negotiations. The Securities and Exchange Commission (SEC) has come under particular fire for allowing enforcement targets to settle while neither admitting nor denying allegations, and we use its policy changes as a case study. But our observations are aimed more broadly at civil enforcement across agencies and our examples come from a wide range of administrative agencies. We use the explicit debate over the SEC’s practices to draw attention to the high (and mostly unexamined) stakes of admissions for enforcement throughout the administrative system.

The article identifies possible enforcement models and provides a nuanced account of what it means to make and require admissions. Although the policy choice is often portrayed as binary - either an agency requires admissions or it does not - the reality is more varied. We break down the options, addressing how admissions of guilt interact with denials and identifying more precisely what may be admitted (facts? legal violation? intent?). Taking our lead from judges, regulators and commentators who have described agencies’ approaches to admissions with words like “truth,” “guilt,” “confession,” and “apology,” we link this discussion to empirical studies of the psychology of blame and responsibility-taking, acknowledgement, and apologies. We use these studies to shed light on the function and value of admissions and the implications for agency settlement negotiations.

Keywords: SEC, administrative, agency, settlement, civil enforcement, admissions of guilt, no admit no deny, guilty plea, admit, FTC, Wells Fargo, financial regulators, apology, admissions of wrongdoing, confession, psychology

JEL Classification: K42, K22, K23