Corporate and environmental criminals rarely go to jail. Why is that?

Getting Tough with El Corpo

By Phil Mattera, Dirt Diggers Digest

As part of my summer reading I’ve been taking another look at some of the key works of the past on corporate crime to consider their relevance for today.

One of the titles on my list is Russell Mokhiber’s Corporate Crime and Violence, which profiled three dozen of the most egregious cases of environmental, workplace hazard and defective product abuses that had occurred in the years leading up to the publication of the book in 1988. Among the culprits were Dow Chemical (Agent Orange), Occidental Petroleum (Love Canal), Johns Manville (asbestos), General Electric (PCBs) and Ford Motor (exploding Pintos).

Mokhiber, editor of the excellent newsletter Corporate Crime Reporter, also reviewed the debates on how to define and how to address corporate misconduct and presented his own “50-Point Law & Order Program to Curb Corporate Crime.”

What strikes me is how little has changed in the past 27 years. Now, as then, we are faced with a seemingly endless series of incidents in which large corporations have caused serious harm to communities, the environment, workers and consumers. 

BP has had to pay around $20 billion to settle the many charges and claims brought against it in connection with the Deepwater Horizon catastrophe in the Gulf of Mexico. An ignition switch defect that General Motors failed to correct has been linked to more than 100 deaths. 

Safety lapses by coal miner Massey Energy (now part of Alpha Natural Resources) allegedly led to a methane explosion that killed 29 workers.

One difference is that we now also have an epidemic of serious financial crimes by major banks. Bank of America, Citigroup, JPMorgan Chase and Wells Fargo have each had to pay billions to settle allegations relating to the sale of toxic securities in the period leading up to the financial, foreclosure abuses and other issues. 

European banks such as Credit Suisse, HSBC and UBS have paid billions more to U.S. and European regulators to settle issues such as tax evasion, violations of economic sanctions and manipulation of the LIBOR interest rate index.

As in 1988, there is little consensus these days on what to do about corporate miscreants. Mokhiber focused on the debate between two camps. On the one side were those who wanted to exempt corporations from criminal charges (because these non-human persons supposedly could not exhibit criminal intent or have a criminal state of mind) and instead use exclusively civil cases to extract more burdensome financial penalties.

On the other side were those, including Mokhiber, who called for applying criminal law more aggressively, arguing, among other things, that the stigma of a criminal conviction would serve as a powerful deterrent against corporate misconduct.

While the debate was never resolved, a quarter of a century later the remedies proposed by both camps have come to pass. Civil penalties have risen to unprecedented levels. Billion-dollar settlements are now commonplace in cases involving large corporations, and in a few cases such as BP, Bank of America and JPMorgan Chase, the payouts have reached eleven figures.

At the same time, settlements in which major corporations plead guilty to criminal charges are becoming more common. Responding to public pressure, the Justice Department first extracted such pleas from subsidiaries of foreign banks UBS and Credit Suisse; this year it got Citigroup and JPMorgan Chase to do the same in a case involving manipulation of foreign exchange markets.

The sad reality is that the application of penalties that seemed so bold in the 1980s seem to be doing little to chasten big business.

Corporations have adjusted to the big penalties, which in some cases are not as large as they seem because they may be tax deductible. The payments are seen as a cost of doing business, and even at their unprecedented levels, the costs are usually well below the financial benefits the culprit companies enjoyed from the illicit activity.

Being convicted felons has not changed things much for banks such as Citigroup and JPMorgan Chase. There is no sign that this stigma has cost them many customers, and their ability to continue to operate in regulated areas has been assisted by special waivers given to them by agencies such as the SEC.

Like the escaped Mexican drug lord called El Chapo, large corporations – El Corpo, so to speak – have an extraordinary and frustrating ability to neutralize measures designed to punish them for their misdeeds. If we are ever going to get corporate crime under control, we’ll have to get a lot more creative. Let’s hope it doesn’t take another 27 years to figure it out.