Why it's getting harder to prosecute white collar crime.
March 24, 2016 7:44 AM Subscribe
"They also don’t really have the will. They’re really nervous about it, very trepidatious." Jesse Eisinger outlines why we're seeing fewer successful actions against corporate and white collar misdoings in the United States.
Highlighted is the Thompson memo of 2003.
"[T]he greatest perquisite of the power class in America is the ability to commit crimes with impunity."
Previous JesseEisinger.
Highlighted is the Thompson memo of 2003.
"[T]he greatest perquisite of the power class in America is the ability to commit crimes with impunity."
Previous JesseEisinger.
Over the last 15 years or so, prosecutors have lost a lot of tools that they used to combat corporate crime. For instance, one of the things they had was a charge....called “honest services fraud.”
I'm not sad to see that go. My understanding is that crime was defined so vaguely that it could be used to prosecute things like posting to Mefi from work.
posted by cosmic.osmo at 8:06 AM on March 24, 2016 [4 favorites]
I'm not sad to see that go. My understanding is that crime was defined so vaguely that it could be used to prosecute things like posting to Mefi from work.
posted by cosmic.osmo at 8:06 AM on March 24, 2016 [4 favorites]
I'm not sad to see that go. My understanding is that crime was defined so vaguely that it could be used to prosecute things like posting to Mefi from work.
Posting to Metafilter from work? That's a paddlin'.
posted by NoMich at 8:11 AM on March 24, 2016 [1 favorite]
Posting to Metafilter from work? That's a paddlin'.
posted by NoMich at 8:11 AM on March 24, 2016 [1 favorite]
My understanding is that crime was defined so vaguely that it could be used to prosecute things like posting to Mefi from work.
OhdearGodno
posted by overeducated_alligator at 8:14 AM on March 24, 2016 [2 favorites]
OhdearGodno
posted by overeducated_alligator at 8:14 AM on March 24, 2016 [2 favorites]
Stealing from stockholders? Egregious mine safety violations? Poisoned water? Corporate tax avoidance? Environmental destruction?
That's a paddling.
That's a feather tickle and a giggle.
posted by BlueHorse at 8:19 AM on March 24, 2016 [4 favorites]
That's a feather tickle and a giggle.
posted by BlueHorse at 8:19 AM on March 24, 2016 [4 favorites]
The article didn't mention the peanut company CEO. 28 year sentence.
Note how rare this is though.
posted by yesster at 8:22 AM on March 24, 2016 [4 favorites]
Note how rare this is though.
posted by yesster at 8:22 AM on March 24, 2016 [4 favorites]
It's because prosecuting white collar crime is (as close to as you'll find) a fair fight. It's easier to come down on some black kid with an overworked PD for holding an ounce of weed and give him a misdemeanor and a year in county instead of rolling the dice on a felony and ten years upstate.
When the rich white guy's lawyer starts fighting back, threatens to call your boss's boss's boss, outright distorts every fact you throw at the jury it soon seems to be a pointless exercise. Unless you catch them red handed doing something truly fucking evil, prosecuting a white guy is like pushing a boulder up a hill. Except you only get one chance to push the boulder and if you lose your footing you're done.
I mean, I can empathize with how shitty the situation is. Damned if you do, damned if you don't. And if you don't you have less losses, less shitty black marks, and less pissing off your boss's boss's boss.
posted by Talez at 8:25 AM on March 24, 2016 [10 favorites]
When the rich white guy's lawyer starts fighting back, threatens to call your boss's boss's boss, outright distorts every fact you throw at the jury it soon seems to be a pointless exercise. Unless you catch them red handed doing something truly fucking evil, prosecuting a white guy is like pushing a boulder up a hill. Except you only get one chance to push the boulder and if you lose your footing you're done.
I mean, I can empathize with how shitty the situation is. Damned if you do, damned if you don't. And if you don't you have less losses, less shitty black marks, and less pissing off your boss's boss's boss.
posted by Talez at 8:25 AM on March 24, 2016 [10 favorites]
This article seems incomplete without a discussion of the memo issued in September by Deputy Attorney General Sally Quillian Yates (PDF), which is intended to increase the ability of DOJ to prosecute individuals for corporate wrongdoing. Among other provisions, the memo requires corporations seeking cooperation credit to provide to DOJ all relevant facts about individuals engaged in misconduct, limits the circumstances under which a resolution of charges against a company can include immunities for the company's employees, and requires prosecutors to submit memoranda explaining why individuals who committed misconduct were not charged.
Obviously, it's too soon to tell whether the policies announced in the Yates memo will make much of a difference.
posted by burden at 8:37 AM on March 24, 2016 [3 favorites]
Obviously, it's too soon to tell whether the policies announced in the Yates memo will make much of a difference.
posted by burden at 8:37 AM on March 24, 2016 [3 favorites]
Loretta Lynch and her administration have tacitly admitted there’s a problem, and now they want to prosecute individuals. That’s a very good thing: you’re admitting there’s a problem, and you’re articulating your goals. We don’t know if they’re going to be able to succeed, and my suspicion is they’re just going to prosecute low-level executives, because the top executives are so isolated.The other thing is you need to have an executive branch that's going to protect you. All of the CEO prosecutions in the world won't make a difference if Judiciary Committee pulls you into constant hearings, trying their best to drag your name through the mud, on how you're being mean to their
What they’re going to have do eventually is to overhaul the DOJ, to change both the skill set and the resources. You can’t flip a switch. There is no solution to it. You need a completely different ethos at the top.
posted by Talez at 9:01 AM on March 24, 2016 [6 favorites]
Stealing from stockholders? Egregious mine safety violations? Poisoned water? Corporate tax avoidance? Environmental destruction?
That's a paddling.
That's a feather tickle and a giggle.
Cardinal Fang! Bring me the comfy chair!
posted by spacely_sprocket at 9:04 AM on March 24, 2016 [2 favorites]
That's a feather tickle and a giggle.
Cardinal Fang! Bring me the comfy chair!
posted by spacely_sprocket at 9:04 AM on March 24, 2016 [2 favorites]
They won the trial, and then Arthur Andersen effectively went out of business. Then a surprising thing happened: there was a big corporate backlash, an engineered PR effort to rehabilitate the reputation of Andersen and to put a human face on the firm. What people ended up focusing on was not that Andersen had been a serial enabler of accounting fraud, a really corrupt entity, but that it had tens of thousand of employees who had been thrown out on the street when it was prosecuted. People ended up deciding that it was a mistake to prosecute Andersen, including most mainstream prosecutors. Most of the supervisors and top executives and regulators at the DOJ now think it was a mistake to prosecute Andersen.
You can see the cult of the "Job Creator" being born, employing tens of thousands of people with the exclusive goal of enabling lawbeaking was actually good, because it created jobs. The rich are the job creators, and by definition can do no wrong.
posted by T.D. Strange at 9:06 AM on March 24, 2016 [17 favorites]
You can see the cult of the "Job Creator" being born, employing tens of thousands of people with the exclusive goal of enabling lawbeaking was actually good, because it created jobs. The rich are the job creators, and by definition can do no wrong.
posted by T.D. Strange at 9:06 AM on March 24, 2016 [17 favorites]
When the rich white guy's lawyer starts fighting back, threatens to call your boss's boss's boss, outright distorts every fact you throw at the jury it soon seems to be a pointless exercise.
This whole issue is distorted by the role of indemnification and the existence of Director and Officer Policy insurance coverage for this sort of crime. It's common if not universal for any type of corporate entity to "indemnify" its directors, officers, executives, managers, etc. Most of these entities purchase insurance coverage to back up that indemnity. So when a black kid gets picked up for drugs or a poor white gets a DUI, they don't have an insurance policy that's going to get dinged, and thus a decent to good lawyer that's going to be appointed by their insurance carrier to prevent criminal liability (and thus a payout under the policy). Businesses do. While a lot of personal profit or fraud type crimes are often excluded under companies' D&O policies, most white collar crime doesn't fall under those exclusions. EDIT: and so white collar criminal prosecutions end up looking like a fully staffed civil lawsuit instead.
So it's helpful if you recognize how difficult the role of indemnity and insurance makes prosecuting white collar as opposed to personal crimes, where a lawyer is usually just trying to minimize the punishment and wrap the case up as quickly as possible to clear his high volume docket.
posted by resurrexit at 9:13 AM on March 24, 2016 [6 favorites]
This whole issue is distorted by the role of indemnification and the existence of Director and Officer Policy insurance coverage for this sort of crime. It's common if not universal for any type of corporate entity to "indemnify" its directors, officers, executives, managers, etc. Most of these entities purchase insurance coverage to back up that indemnity. So when a black kid gets picked up for drugs or a poor white gets a DUI, they don't have an insurance policy that's going to get dinged, and thus a decent to good lawyer that's going to be appointed by their insurance carrier to prevent criminal liability (and thus a payout under the policy). Businesses do. While a lot of personal profit or fraud type crimes are often excluded under companies' D&O policies, most white collar crime doesn't fall under those exclusions. EDIT: and so white collar criminal prosecutions end up looking like a fully staffed civil lawsuit instead.
So it's helpful if you recognize how difficult the role of indemnity and insurance makes prosecuting white collar as opposed to personal crimes, where a lawyer is usually just trying to minimize the punishment and wrap the case up as quickly as possible to clear his high volume docket.
posted by resurrexit at 9:13 AM on March 24, 2016 [6 favorites]
Corporate officer insurance doesn't have much to do with jail time, there's criminal statutes available to prosecute personal defendants for corporate crimes. But they are never used.
posted by T.D. Strange at 9:16 AM on March 24, 2016
posted by T.D. Strange at 9:16 AM on March 24, 2016
It is appropriate to cite Richard Posner, whom some on this site have inexplicably invoked as America's foremost legal intellectual, who argues that affluent white-collar criminals should not be jailed but only fined. Jail should be reserved for non-affluent criminals.
posted by JackFlash at 9:52 AM on March 24, 2016 [3 favorites]
posted by JackFlash at 9:52 AM on March 24, 2016 [3 favorites]
Isn't this an arm of Neoliberal strategy/policy on the part of corporations and business in general? Gently manipulating systems to provide opportunities and markets that didn't exist before, while beavering away at regulations and capturing regulators. Who saw the Malheur Wildlife Refuge threads? Government has no moral right to impose regulations on business owners or their operations, and who says what we're doing is criminal? That's just big government justifying the system by defining us as the enemy. Granted, this kind of stuff seems more common in the US where there's a history of lawyering, and the implicit belief that if you got away with something morality must be on your side.
posted by sneebler at 10:16 AM on March 24, 2016 [1 favorite]
posted by sneebler at 10:16 AM on March 24, 2016 [1 favorite]
You have to admire the coup the powerful pulled off when they managed to get harsh jail sentences enacted for deterrence on violent crimes, where deterrence doesn't work, but light sentences for economic crimes, where deterrence does work.
Discredit deterrence so it doesn't get used on you, by poisoning the well. I don't know how conscious this was, but they've done an impressive job of demonstrating that justice just doesn't exist at a social level here.
posted by Strudel at 10:21 AM on March 24, 2016 [8 favorites]
Discredit deterrence so it doesn't get used on you, by poisoning the well. I don't know how conscious this was, but they've done an impressive job of demonstrating that justice just doesn't exist at a social level here.
posted by Strudel at 10:21 AM on March 24, 2016 [8 favorites]
It is appropriate to cite Richard Posner, whom some on this site have inexplicably invoked as America's foremost legal intellectual, who argues that affluent white-collar criminals should not be jailed but only fined. Jail should be reserved for non-affluent criminals.
From what I can tell, some Mefites like Posner in part because he's willing to revisit his views over time, as with same-sex marriage. I don't think it's inappropriate to cite him but maybe using present-tense "argues" when linking out to an article that's 36 years old is a little misleading.
posted by mama casserole at 11:41 AM on March 24, 2016 [2 favorites]
From what I can tell, some Mefites like Posner in part because he's willing to revisit his views over time, as with same-sex marriage. I don't think it's inappropriate to cite him but maybe using present-tense "argues" when linking out to an article that's 36 years old is a little misleading.
posted by mama casserole at 11:41 AM on March 24, 2016 [2 favorites]
What they’re going to have do eventually is to overhaul the DOJ, to change both the skill set and the resources. You can’t flip a switch. There is no solution to it. You need a completely different ethos at the top.
The importance of the resources cannot be overstated. While the DOJ takes a lot of the credit, the civil settlements with the banks related to RMBS fraud were actually driven by two things: (a) a few ambitious states which had the political will to use the state blue sky laws, which tend to be idiosyncratic and less sharply-cabined than federal securities law these days and (b) the federal conservator of Fannie and Freddie, FHFA, being given an "independent mandate" when it was created, that is, being allowed to hire outside counsel instead of going through the DOJ. The FHFA hired two large law firms (Quinn Emanuel and Patterson Belknap), which brought Biglaw staffing, litigation style, and resources to the cases. They forced the door open. There is simply no way that the DOJ could have managed to depose (effectively) the dozens of witnesses over a few months involved. Even with the will, they wouldn't have had the manpower. Or just the IT capabilities involved!
Attracting and retaining competent lawyers and support staff in sufficient numbers to sustain this kind of litigation, whether civil or criminal, is a huge problem. You can't find many more direct connections between the strategy of starving the state of resources and the breakdown of effective government.
posted by praemunire at 1:34 PM on March 24, 2016 [3 favorites]
The importance of the resources cannot be overstated. While the DOJ takes a lot of the credit, the civil settlements with the banks related to RMBS fraud were actually driven by two things: (a) a few ambitious states which had the political will to use the state blue sky laws, which tend to be idiosyncratic and less sharply-cabined than federal securities law these days and (b) the federal conservator of Fannie and Freddie, FHFA, being given an "independent mandate" when it was created, that is, being allowed to hire outside counsel instead of going through the DOJ. The FHFA hired two large law firms (Quinn Emanuel and Patterson Belknap), which brought Biglaw staffing, litigation style, and resources to the cases. They forced the door open. There is simply no way that the DOJ could have managed to depose (effectively) the dozens of witnesses over a few months involved. Even with the will, they wouldn't have had the manpower. Or just the IT capabilities involved!
Attracting and retaining competent lawyers and support staff in sufficient numbers to sustain this kind of litigation, whether civil or criminal, is a huge problem. You can't find many more direct connections between the strategy of starving the state of resources and the breakdown of effective government.
posted by praemunire at 1:34 PM on March 24, 2016 [3 favorites]
I'm not in favor of prison sentences for white collar crime, or any other form of non-violent crime. The fix is not to imprison white collar criminals because it'd be fair, but to stop imprisoning so many poorer non-violent criminals.
Mind, I **DO** favor banning certain types of white collar criminals from owning stock or serving in any management position, so they might prefer imprisonment. Broke finance law? You can't be a banker, or investment person, or whatever anymore. Not for a period of five years or ten years, but ever. From now until the day you die you are banned from holding any management position, or having anything to do with the economy other than working for hourly wages and having a checking account. Being a banker is a privilege, not a right. Being a stockbroker is a privilege, not a right. Abuse that privilege and it should be taken away.
I also favor ruinous financial penalties for white collar crime. None of this business where the fine, if any is levied at all, is a tiny fraction of the amount stolen and paid by the corporation not the individuals responsible. The minimum fine should be 200% of the amount stolen or damage done, and it should be a fine levied on the people responsible not the corporation. If that forces a few bankers into burger flipping poverty and living in public housing after all of their possessions have been sold at auction, then I'm happy. After they're personally ruined and have no possessions, not their Rolex, not their car, not their house, not their retirement money, not their stock, not their jewelry, nothing, then and only then should the corporation be allowed to pay the rest off.
But putting them in prison seems both inhumane and too expensive to bother with. What good would it do to put Bernie Madoff in jail? It just meant we'd be paying for his housing. Better to have stripped him of all he owned and sent him to work menial jobs for the rest of his life.
posted by sotonohito at 1:48 PM on March 24, 2016 [8 favorites]
Mind, I **DO** favor banning certain types of white collar criminals from owning stock or serving in any management position, so they might prefer imprisonment. Broke finance law? You can't be a banker, or investment person, or whatever anymore. Not for a period of five years or ten years, but ever. From now until the day you die you are banned from holding any management position, or having anything to do with the economy other than working for hourly wages and having a checking account. Being a banker is a privilege, not a right. Being a stockbroker is a privilege, not a right. Abuse that privilege and it should be taken away.
I also favor ruinous financial penalties for white collar crime. None of this business where the fine, if any is levied at all, is a tiny fraction of the amount stolen and paid by the corporation not the individuals responsible. The minimum fine should be 200% of the amount stolen or damage done, and it should be a fine levied on the people responsible not the corporation. If that forces a few bankers into burger flipping poverty and living in public housing after all of their possessions have been sold at auction, then I'm happy. After they're personally ruined and have no possessions, not their Rolex, not their car, not their house, not their retirement money, not their stock, not their jewelry, nothing, then and only then should the corporation be allowed to pay the rest off.
But putting them in prison seems both inhumane and too expensive to bother with. What good would it do to put Bernie Madoff in jail? It just meant we'd be paying for his housing. Better to have stripped him of all he owned and sent him to work menial jobs for the rest of his life.
posted by sotonohito at 1:48 PM on March 24, 2016 [8 favorites]
Seeing as how the criminals behind the US housing crisis ruined millions of innocent citizen's lives, careers and savings, I'm pretty OK with any amount of jail time. If not how China deals with these issues.
posted by T.D. Strange at 1:56 PM on March 24, 2016 [1 favorite]
posted by T.D. Strange at 1:56 PM on March 24, 2016 [1 favorite]
I think I'd get greater schadenfreude by mocking them after they ask if I'd like fries with that.
posted by sotonohito at 2:08 PM on March 24, 2016
posted by sotonohito at 2:08 PM on March 24, 2016
sotonohito: "What good would it do to put Bernie Madoff in jail?"
Bernie Madoff is in jail.
I'm broadly sympathetic to your position but I think it would be extraordinarily difficult to work out the specifics involved such that the punished really are punished. Think of the outcry there would be about the innocent spouse and children, or how you would create rules such that they could only work menial jobs. I think what might happen is that powerful friends (or even the corporation itself secretly in thanks) would help pay the debt, and the punished would live a decent life. If we want to craft a punishment to serve as a deterrent, I think prison is more effective.
posted by crazy with stars at 3:03 PM on March 24, 2016 [1 favorite]
Bernie Madoff is in jail.
I'm broadly sympathetic to your position but I think it would be extraordinarily difficult to work out the specifics involved such that the punished really are punished. Think of the outcry there would be about the innocent spouse and children, or how you would create rules such that they could only work menial jobs. I think what might happen is that powerful friends (or even the corporation itself secretly in thanks) would help pay the debt, and the punished would live a decent life. If we want to craft a punishment to serve as a deterrent, I think prison is more effective.
posted by crazy with stars at 3:03 PM on March 24, 2016 [1 favorite]
I'm not in favor of prison sentences for white collar crime, or any other form of non-violent crime.
First you work on eliminating jail time for all non-violent crimes, starting with drug sentences, then we'll talk about white-collar crime.
That's okay, I'll wait.
But I would also question the definition of non-violent crime, because I consider stealing people's houses, stealing people's retirement funds, ruining people's lives to be a form of violence. What is more violent on your scale -- the guy who sticks up a 7/11 for $50 or the guy who illegally throws 1000 people out of their homes onto the street.
posted by JackFlash at 3:25 PM on March 24, 2016 [9 favorites]
First you work on eliminating jail time for all non-violent crimes, starting with drug sentences, then we'll talk about white-collar crime.
That's okay, I'll wait.
But I would also question the definition of non-violent crime, because I consider stealing people's houses, stealing people's retirement funds, ruining people's lives to be a form of violence. What is more violent on your scale -- the guy who sticks up a 7/11 for $50 or the guy who illegally throws 1000 people out of their homes onto the street.
posted by JackFlash at 3:25 PM on March 24, 2016 [9 favorites]
What is more violent on your scale -- the guy who sticks up a 7/11 for $50 or the guy who illegally throws 1000 people out of their homes onto the street.
Some portion of which - both desperate and bitter- go out and stick up 7/11s for $50.00.
posted by Alter Cocker at 4:52 PM on March 24, 2016 [1 favorite]
Some portion of which - both desperate and bitter- go out and stick up 7/11s for $50.00.
posted by Alter Cocker at 4:52 PM on March 24, 2016 [1 favorite]
Loretta Lynch and her administration have tacitly admitted there’s a problem, and now they want to prosecute individuals.
Love the "tacitly". Also the "they want to". Oh, and the "now".
I won't hold my breath. Lynch's predecessor Holder basically folded without a fight, and then tried to say he didn't.
posted by IndigoJones at 5:00 PM on March 24, 2016 [2 favorites]
Love the "tacitly". Also the "they want to". Oh, and the "now".
I won't hold my breath. Lynch's predecessor Holder basically folded without a fight, and then tried to say he didn't.
posted by IndigoJones at 5:00 PM on March 24, 2016 [2 favorites]
US Attorney Becomes Rock Star In Turkey For Arresting Erdogan’s Partner
posted by jeffburdges at 12:34 AM on March 25, 2016 [1 favorite]
posted by jeffburdges at 12:34 AM on March 25, 2016 [1 favorite]
I think organizations with significant economic, or legal, influence need effective transparency requirements. We should see the internal correspondences of both Bank of America and DOJ, SEC, etc. We should see the source code of both the trading software of Morgan Stanley and the hacking tools of the FBI.
It's fine if some hedge fund wants secrecy because they do not really impact the economy, but if you've a million employees, manage a trillion dollars, or determining when people go to jail, then you should not have any secrets for long. Too big to fail is too big for secrecy.
posted by jeffburdges at 12:46 AM on March 25, 2016 [5 favorites]
It's fine if some hedge fund wants secrecy because they do not really impact the economy, but if you've a million employees, manage a trillion dollars, or determining when people go to jail, then you should not have any secrets for long. Too big to fail is too big for secrecy.
posted by jeffburdges at 12:46 AM on March 25, 2016 [5 favorites]
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posted by DirtyOldTown at 7:46 AM on March 24, 2016 [17 favorites]