Understand business crime, protect the community

Business Crime Simple and Complex

By Phil Mattera, Dirt Diggers Digest

Much of the corporate misconduct of the past decade has involved complicated schemes involving the likes of mortgage-backed securities and credit default swaps. A recent announcement by the Consumer Financial Protection Bureau is a reminder that old-fashioned business thievery is still very much with us.

Citizens Bank will pay $18.5 million to settle CFPB allegations that it routinely pocketed the difference when customers mistakenly filled out deposit slips for amounts lower than the sums actually transferred. Taking advantage of the carelessness of others added up for the bank: $11 million of the payment by Citizens will consist of refunds, with the rest representing penalties imposed by the CFPB under its powers granted by the industry-vilified Dodd-Frank Act.

The under-crediting attributed to Citizens is the flip side of the overcharging that is surprisingly common among large retailers. Whole Foods is facing a shareholder lawsuit and sinking sales in the wake of allegations by the New York City Department of Consumer Affairs that its local stores were systematically and egregiously overcharging customers for pre-packaged foods. 

The agency found that: “89 percent of the packages tested did not meet the federal standard for the maximum amount that an individual package can deviate from the actual weight, which is set by the U.S. Department of Commerce. The overcharges ranged from $0.80 for a package of pecan panko to $14.84 for a package of coconut shrimp.” The company admitted it had made “mistakes.”

In February, Target paid $3.9 million to settle allegations by half a dozen district attorneys in California that prices charged at the register were higher than those posted in the aisles.

In April, Wal-Mart was hit with a proposed class action lawsuit alleging that the company overcharged customers at its vision centers by inflating insurance co-pay amounts.

Earlier this month, Genuine Parts agreed to pay $338,000 to settle allegations by the San Diego District Attorney that its several of its NAPA Auto Parts stores were overcharging customers.

Cases such as these belie the notion that “thumb on the scale” types of simple cheating are mainly to be found among small businesses. Large companies are apparently inclined to engage in both simple and complex misdeeds.

Citizens Bank symbolizes the link between the different types of misconduct. The company is a subsidiary of the Royal Bank of Scotland, which has been deeply involved in a variety of complex financial scandals.

Earlier this year, it pleaded guilty to criminal charges of conspiring to fix foreign currency rates, along with three other major banks. RBS was fined $395 million (and another $274 million by the Federal Reserve) and put on probation for three years. The SEC gave it a waiver from a rule that would have barred it from remaining in the securities business.

In 2013 RBS had to pay $153 million to settle charges that it misled investors in a 2007 offering of subprime residential mortgage-back securities. That same year, it paid $612 million to settle civil and criminal charges that it was involved in the manipulation of the LIBOR interest rate index.

Whether simple or complex, corporate wrongdoing needs to be prosecuted aggressively.