and (Very Little) Punishment
the bastards to jail! At least, so goes the refrain from America’s
newest anti-corporate activists: the Senate, the House, and
the president. Clearly, corporate crime is finally starting
to register on pollsters’ seismographs because suddenly all
of official Washington is high on corporate punishment, drunk
on the idea of tossing CEO scofflaws in the slammer. The Big
House is all the rage, with politicians on both sides of the
aisle dancin’ to the jailhouse rock.
A day after President Bush took Wall Street to the woodshed
and proposed doubling the maximum prison term for mail fraud
and wire fraud, the Senate did him one better, voting 97-0
to adopt stiff new criminal penalties for securities fraud,
document shredding and the filing of false financial reports.
needs to go to jail,” Senate Majority Leader Tom Daschle intoned
ominously. “We’re going to shackle them and take them to jail,”
growled House Majority Whip Tom DeLay, sounding like he couldn’t
wait to slap on the handcuffs himself.
The new consensus along that other Axis of Evil, the one connecting
Washington and Wall Street, is that very publicly hauling
a few corporate crooks off to jail would be a very good thing
for the market, for the economy and for our political leaders’
Count me in with the law-and-order crowd. The question is,
how many of corporate America’s new breed of robber barons
will ever actually see the inside of a jail cell? If the past
is indeed prologue, the answer is very, very few.
In the last 10 years, the Securities and Exchange Commission,
which, despite being the government’s top corporate watchdog,
doesn’t have the authority to toss even the worst Wall Street
cheaters in jail, turned 609 of its most offensive offenders
over to the Justice Department for potential criminal prosecution.
Of those, only 187 ended up facing criminal charges. And of
those, only 87 went to jail. Eighty-seven. In 10 years. And
most white-collar criminals land in one of those ritzy country-club
prisons, where inmates play tennis and make collect calls
to their brokers all day.
So despite the PR value of pumping up maximum sentences for
corporate crimes, it’s not going to make much of a dent in
boardroom thievery, since so few of the perpetrators will
ever face criminal prosecution. For a corrupt corporate chieftain
crunching the numbers, the odds will still justify the crime.
Doubling the penalties for those convicted of crimes that
are so rarely prosecuted is not serious reform.
And just why are most prosecutors so reluctant to take on
these kinds of cases, passing up more than half of the ones
the SEC sends their way?
Well, for one thing, proving fraudulent intent is tricky business,
and in criminal cases, it has to be proven beyond a reasonable
For another, with rare exceptions, most prosecutors just don’t
have either the passion for making corporate criminals pay
or the mindset that these kinds of crimes are worth the hassle
of pursuing them. Too busy busting prostitutes in New Orleans,
perhaps? Even New York Attorney General Eliot Spitzer, one
of the few who has shown a willingness to take on Wall Street’s
elite, allowed Merrill Lynch to walk away with a fine but
without having to admit guilt for brazenly misleading investors,
even though Spitzer had the bankers dead to rights.
Plus, prosecutors like to win. When they go after a corporate
player, they know they’ll be locking horns with the best legal
talent that billions can buy, not running roughshod over some
overworked public defender. It’s a high-stakes game that many
aren’t willing to play.
Compare this tiptoeing on eggshells with the ardor with which
our criminal justice system pursues even the lowest-level
drug offenders. In 2000 alone, 646,042 people were arrested
in America for simple possession of marijuana. And while the
Drug Enforcement Administration has a budget of $1.8 billion,
even with the extra $100 million Bush wants to toss its way,
the SEC will have to make do with $513 million.
The sentencing side of the criminal-justice ledger exhibits
the same inequity: The average sentence for even the biggest
white-collar crooks is less than 36 months; nonviolent, first
time federal drug offenders are sent away for more than 64
months. So much for letting the punishment fit the crime.
The bitter truth is that, unlike the majority of nonviolent
drug cases, corporate malfeasance is not a victimless crime.
Not with tens of thousands of laid-off workers, $630 billion
lost from corporate pension plans, and more than $4 trillion
in shareholder assets wiped out in the scandal-fueled stock-market
So when it comes to rooting out corrupt corporate kingpins,
will the president’s new “financial crimes SWAT team” have
the stomach for the fight? Can we expect to see undercover
“narc-accountants” infiltrating what’s left of the Big Five
accounting firms? Middle of the night no-knock raids on companies
that restate their earnings by billions of dollars?
Confiscation of an executive’s entire assets simply on the
suspicion of fraud? Will corporate cops get to emulate their
drug-fighting counterparts and be allowed to keep a percentage
of the money they confiscate? I bet that would help change
the reluctance to target corporate corruption.
Here’s the bottom line: Our political leaders’ tough talk
notwithstanding, are we really serious about declaring war
on corporate crime? Or are we merely going to toss Martha
Stewart in jail and move on?