We have been far too lenient in dealing with, what are defined in law, as criminal actions in banking and finance. It is time to get tough, set examples and hope that fear of jail and personal degradation may make those susceptible to avarice think twice, or perhaps even see company policies, procedures and codes of conduct as desirable individual goals.

Our friends in the U.K. have seen the light. Recently, three individuals were arrested for questioning related to interest rate fixing for Euribor, the eurozone equivalent of Libor. In both rate-rigging cases, the pressure to move from a self-policing setup to more centralized control has grown in both London and Frankfurt. The recent meeting of eurozone finance ministers resulted in an agreement to move forward toward a zone-wide overseeing authority for all major banks. This authority, when established, would either control the Euribor function or have oversight of the Brussels-based organization currently managing the operation.

On Dec. 17 two former hedge fund managers were found guilty of conspiracy and fraud. These convictions by the Manhattan District Attorney bring the totals to 72 indictments and 71 guilty pleas or convictions since 2009. One might ask, if hedge fund managers are criminals, what about bank managers found guilty of money laundering, interest rate tampering or fraudulent reporting?

Numerous actions have been taken by U.S. regulatory agencies against financial institutions for money laundering and sanction violations. However, many indictments of firms and individuals have been made on a civil law basis. The reasons for not following through with referrals by the regulatory agencies to the Department of Justice for criminal indictments are reasonable for large banks. Regulators are reluctant to ask for criminal indictments on banks "Too Big to Jail." Like AIG, a major bank has far too many links to others in the global financial structure and putting one out of business would have major impact throughout the system.

For instance, a criminal indictment by the Federal Department of Justice would provide New York State with a valid basis for pulling that bank's license to do business in New York. But, as in the recent Standard Chartered case, the New York Attorney General chose a big fine over any criminal action. Perhaps the bank proved much too important to the New York financial center to put it out of business. But what about the individuals who violated the law?  Why are executives being sent to jail for insider trading, but few criminal indictments are being brought against individuals in major banks?

Governing or controlling ethical behavior dates back as far as the Old Testament. In the 1960s, behavioral scientists introduced motivation as an alternative to punishment for influencing individual good behavior. Since 1999, the emphasis on good corporate governance has been made at board and top management levels throughout industries.

The DOJ is so eager to separate the bad from the evil that it revised its Federal Court Sentencing advisory guidelines in 2011 to suggest leniency where the board and management of a corporation have made an earnest effort to install and manage ethical policies and controls of illegal actions. As such, in setting up policies and procedures, most corporate codes of conduct set forth guidelines controlling ethical behavior stipulating both a fear factor (the stick) and motivation factors (the carrot).

Financial institutions have always been in the forefront of the carrot approach with bonuses some deem as obscene. It will be interesting to see if Dodd-Frank rules awaiting implementation will affect executive compensation, because, thus far, the deluge of new rules and regulations under the reform has done little or nothing to change the internal environments within financial institutions. In fact, in concentrating on these new rules, the eye on the ball may actually have been distracted from the older and more punitive laws. Money laundering laws go back to 1970, sanctions regulations to 1812 (updated in 1940 and strengthened by Article III of the Patriot Act in 2001).

Who pays the price of these huge fines instead of criminal indictments?  Unfortunately, it is the shareholders and customers who end up with the short end of the stick. It is time we pay more attention to placing blame where it exists and punishment where it is warranted, not foisting penalties off on shareholders, investors, customers and employees.

John Alan James is executive director of the Center for Global Governance, Reporting and Regulation at Pace University's Lubin School of Business in New York City. He is also program director of Pace University's Certified Compliance and Regulatory Professional certificate program.