Slapping Corporate Wrists a Little Harder
By Phil Mattera, Dirt Diggers Digest
When it comes to corporate crime, a very different standard is
applied. Prosecutors go out of their way to soften the impact on offenders.
Criminal charges are often not filed, and when they are companies are offered
deferred prosecution agreements that allow them to pay fines and make promises
not to sin again.
Getting a guilty plea from a major bank (rather than from one of
its obscure subsidiaries, as happened in the LIBOR-manipulation case
involving UBS) would be an important step in affirming that these institutions
are not above the law. The problem is that the Justice Department does not seem
to want to impose the kind of penalties that normally go along with a criminal
conviction.
According to the Times, prosecutors are meeting with
banking regulators “about how to criminally punish banks without putting them
out of business and damaging the economy.”
We would never hear such a statement made about, say, an illegal
gambling ring. There is no concern that going after such an operation would
eliminate jobs and harm the economy.
As for banks, even when they are found to have engaged in
egregious behavior, they are treated as legitimate institutions that must be
preserved. It is true that not every employee may have been involved in
criminal misconduct, but that is no reason why the continued survival of the
bank in its existing form has to be regarded as an essential component of any
resolution of criminal charges.
Corporate crime will not disappear until prosecutors are willing
to consider truly punitive penalties for companies that engage in serious
misbehavior. By this I mean consequences that go well beyond fines that a
company can easily afford (and can often deduct from its taxes).
It’s often said that bringing criminal charges against
corporations is pointless, since a company cannot be put in prison. Leaving
aside the question of the feasibility of putting corporate executives behind
bars, this view fails to acknowledge the other ways in which a firm’s liberty
can be restricted.
We see such an example in the current scandal involving Los
Angeles Clippers owner Donald Sterling, who is being fined $2.5 million and
banned for life by the National Basketball Association for making racist
statements but who also may be forced to sell the team.
Why is the Justice
Department not talking about forcing banks such as Credit Suisse and BNP
Paribas to divest themselves of the operations in which the prohibited
practices took place? I would prefer to see such criminal enterprises
confiscated outright, but that may be too much to hope for.
Prosecutors have to weigh the economic impact of cases that
might, for instance, lead to the revocation of a bank’s license to operate,
which is considered the corporate equivalent of the death penalty. This is
apparently behind the caution being exhibited in the Credit Suisse and BNP
Paribas negotiations.
The lesson that prosecutors seem to have taken from the 2002
conviction of Arthur Andersen, the accounting firm that abetted Enron’s frauds,
is that putting a company out of business is a big mistake. I don’t understand
why.
The demise of Andersen and Enron and Drexel Lambert did not
bring about economic calamity. In fact, the economy was probably better off
without these corrupt institutions. We might also be better off if today’s
miscreants met a similar fate, or at least had to undergo radical
restructuring. And that would send a clear message to other corporations that
they have to clean up their act.
Note: For an analysis of an industry that has a lot to clean up,
including widespread wage theft, see the report just issued by the Restaurant
Opportunities Center United and other groups on the National Restaurant
Association and its members. I contributed the Rogues Gallery section.