As it pertains to white-collar crime, please discuss the following:
- How is punishment handed out with civil law violations v. criminal law? Does this difference influence corporations?
- The link between corporate deviance and social class (Discuss specific examples from Enron, Madoff, etc.)
- How informed on the white collar issues are members of Congress? Why is this important? What did congress do to add to the problem in banking?
The Fifth Amendment to the U.S. Constitution, in addition to its protection against self-incrimination (i.e., an individual cannot be compelled to testify against himself), includes a guarantee that an individual cannot be tried twice for the same crime. Known as “double jeopardy,” once acquitted of a crime, the government cannot attempt to try the same suspect a second time for that crime. This reason this is mentioned is because, in discussing distinctions between civil and criminal procedures, state and federal governments have routinely circumvented that constitutional protection by following criminal trials with civil proceedings intended to financially penalize the suspect(s) beyond any criminal penalties that may have already been imposed and, more to the point, to penalize suspects even though they insufficient evidence exists to secure a conviction in a criminal trial. Additionally, many violent crimes, historically, were not violations of any federal law; crimes such as murder and rape exist in state statutes, not in the federal code. When the U.S. Department of Justice cannot prosecute a case because the underlying crime is a violation of a state’s law but not of federal law and the state in question has failed to prosecute the case or has tried and failed to secure a conviction, it seeks retribution through civil proceedings. Thus, “double jeopardy” takes place irrespective of the spirit if not the letter of the Fifth Amendment.
This is all intended to lead into a discussion of the distinctions between civil and criminal law, and how corporations view the two categories. During my years on the staff of the U.S. Senate Banking Committee, I witnessed many financial penalties imposed on both American and foreign banks, usually for violations of U.S. anti-money laundering laws or for violating U.S. laws pertaining to financial sanctions on certain foreign governments, mainly Iran’s. Some of these fines imposed on financial institutions were very large, in the tens or even hundreds of millions of dollars. The question some of us had at the end of the day, however, was whether the individuals running those financial institutions seriously cared about the monetary fines they were ordered to pay. Corporation with billions of dollars in assets may not be deterred by the prospects of a civil fine in the amount of $50 million. And this is the problem with civil law as it pertains to some forms of illicit conduct: the penalty may not fit the crime, or it may fit the crime but be of relatively little consequence to the corporation. When no criminal penalties, mainly the threat of incarceration, are possible, it can be highly questionable whether even very large civil penalties constitute a just resolution of the crime in question. Corporate executives fear prison, even minimum security prison; they are rarely as fearful, however, of the threat of financial penalties that do not impoverish them and their families.
With respect to the relationship of socioeconomic status to corporate misconduct, there is no question that major white collar crimes have been carried out by very wealthy individuals, as well as by individuals thought to be wealthy but who are, in fact, merely successful in presenting an image of financial success. Such was the case with Bernie Madoff, whose Ponzi scheme resulted in enormous losses by those who entrusted him with their money. That Madoff, the executives of Enron and Arthur Andersen, and of other major corporations carried out illicit schemes while enjoying comfortable lives, however, does not mean that all of these prosperous white collar criminals are from wealthy backgrounds. Madoff came from humble means, as did Ivan Boesky and Kenneth Lay, the latter the disgraced chief executive officer (CEO) of Enron. What these individuals, and many others, all had in common was a serious commitment to succeed in business and the mental acumen necessary to make it happen. All became enormously successful, although Madoff and Boesky apparently owed much of their financial success to the financial crimes for which they were eventually convicted.
Regarding Congress and its ability to understand white collar crime and to conduct oversight of U.S. Government agencies responsible for regulating the financial industry and investigating and prosecuting financial crimes, one could conclude that most members of Congress are hardly up to the task. In fact, having spent six years working for the Senate Banking Committee and observing many of these elected officials up-close, I would have to conclude that very few actually understand the issues for which they are responsible. And many of those who do understand the issues have as their constituents the very financial institutions whose conduct may be most worrisome, which brings us to the matter of whether Congress holds some measure of responsibility for the financial crisis that struck the U.S. inn 2008. In my view, the answer is yes. Senior members of the U.S. House of Representatives Committee on Financial Services, the counterpart to the Senate Banking Committee, are believed to have pressured banks into authorizing loans to families that were not otherwise qualified to receive such loans. The number and amount of such questionable loans was enormous. That many of those questionable loans were later “bundled” and sold as securities, however, is indicative of the difficulties of regulating the financial industry without restricting its ability to function as needed. There are a lot of very smart and very creative individuals in the financial services industry, and they earn a lot of money by coming up with innovative ways to investing their clients’ money. That few in Congress are capable of tracking such developments and even fewer interested in regulating such activities remains one of the country’s most important regulatory weaknesses. Understanding complex financial instruments like derivatives and hedge funds requires a level of intellect rare among elected officials. That, however, is just my opinion.