Tuesday, November 22, 2011
In addition to promulgating regulations, federal administrative agencies penalize entities that violate their rules. In 2010 alone, the National Highway Traffic Safety Administration imposed a statutory maximum $16.4 million penalty on Toyota and the Securities and Exchange Commission recovered $535 million from Goldman Sachs, the largest civil penalty a financial services firm has ever paid. The academic literature proposes two major theories explaining why agencies might seek these monetary penalties. First, agencies might seek to deter misconduct by using civil penalties to raise the expected cost of regulatory violations above the cost of compliance. Alternatively, agencies might use civil penalties as one step in an escalating series of enforcement responses to recalcitrant behavior by a regulated entity. Both of these theories assume that agencies punish in order to induce compliance with agency regulations. In the language of the criminal law, agencies are assumed to be consequentialists. Agency descriptions of their penalty policies support this assumption. Agencies claim to focus on deterrence, not retribution, when setting penalties.
This Article argues that consequentialist theories fail to explain the actual civil penalty policies in place at a range of federal administrative agencies. Instead, agency penalty policies are largely designed to achieve retributive ends. In short, agencies are more interested in desert than deterrence. The presence of widespread retribution in agency punishment raises serious concerns about legitimacy and competence. Administrative agency punishment lacks the transparency and structural protections that legitimize retribution in the criminal context. Additionally, agency subject matter expertise is unlikely to extend far enough to effectively implement retributive theories.