Enron turned out not to be an isolated
incident and the list of companies touched by financial scandal soon included
Tyco, Global Crossing, Quest, Worldcom, Xerox, Adelphia, MicroStrategy, ImClone
and homemaker Martha Stuart, AOL-Time Warner, K-Mart and some major banks, such
as Citigroup and J. P. Morgan Chase. Questions surfaced regarding President
Bush’s sale of Harkin Energy shares right before bad news caused the price to
fall; and other questions arose concerning the accuracy of the earning reports
of Haliburton Oil for the years when Vice President Cheney was its CEO. [See Washington
Post's Corporate Scandal Primer]
Investor confidence plummeted along with
stock prices, and politicians tripped over themselves trying to appear tough on
corporate crime. President Bush announced what he described as strict new
measures and Senator Christopher Dodd (D-Connecticut) quickly said that Bush
demonstrated a lack of leadership on the issue, although the Washington Post
pointed out that Dodd himself had “led an effort in 1995 to limit shareholders’
lawsuits alleging fraud.” [iv] Numerous other critics claimed that
President Bush was too close to the problem to deal effectively with the
wrongdoing: Enron had contributed about $2 million to Bush over the course of
his political career (for a list of financial scandals matched to amounts
contributed to the political parties by the suspect companies, see Citizen Work’s “Crookbook”).
Congress passed the Sarbanes-Oxley Act, a more comprehensive bill than
President Bush proposed, and one touted as the most sweeping financial reform
since the Depression Era. Federal
agents did the “perp walk” with several handcuffed executives before the press
and American public; but, considering the number of people and the amounts of
money involved, arrests and indictments have been few.
These events will not surprise readers of The Rich Get Richer and the Poor Get Prison,
which documents a large amount of serious but unpunished (or under-punished)
white-collar crime, and the even larger amount of harmful white-collar behavior
that doesn’t get labeled as crime though it takes more from people’s pockets
than the crimes on the FBI’s Uniform Crime Index. Harmful acts done by the executives of big corporations and their
underlings are comparable in harm and evil to the street crimes people fear (see
Chapter 2’s discussion with the Defender of the Present Legal Order, as well as
the statistics in that chapter comparing criminal and noncriminal harms); but
the criminal justice system “weeds out the wealthy” by either not including the
harmful acts of businesspeople within the criminal code or, if they are made
crimes, by not vigorously pursuing prosecution (see Chapter 3’s section
“Weeding Out the Wealthy,” and the statistics in that chapter about who
actually gets punished by the criminal justice system). Should we view the recent
“tough-on-corporate-crime rhetoric,” the new legislation, and the sight of
executives in handcuffs as a sign that things are changing?
“Huff and Puff and . . . Do Little":
Congressional Response to White Collar Crime
As we begin to
answer the question about whether the U.S. is truly getting tough on corporate
crime, it is necessary to note that what is at issue is not merely
whether white-collar crimes are being punished adequately. As The Rich Get Richer and the Poor Get
Prison argues at length and with an avalanche of statistics, great if not
greater threats come from those harmful acts of corporate execs that are not
technically crimes. The so-called
“questionable bookkeeping” and “misstatements” that Enron and others engaged in
were not mere technical rule violations without real victims. One important consequence of the current
spate of corporate crime and financial trickery is the elimination of many
people’s retirement nest eggs, forcing many older people to put off retirement
and many retirees to go back to work:
“In this age of the 401(k), when the retirement dreams of middle-class
America are tied to the integrity of the stock market, crooks in the corner
office are everybody’s problem.” [v] Other families had college tuition money
tied up in stocks, along with their dreams of a more comfortable future.
The problem is twofold. There are the “unsavory” or “unethical” but
not illegal practices that cause harm to many, and there are the white-collar
crimes which are either not punished or, if punished, only lightly so. To be sure, the Savings & Loan scandal,
as the Watergate scandal before it, did lead to some toughening of white-collar
crime sentences, and some crooks responsible for the S & L scandal went to
jail much as some of today’s white-collar crooks will end up in jail. On the whole, however, these are few and far
between, and their presence on the front page or on the nightly news should not
fool us. They are the exceptions that
prove the rule, and the rule is: the rich get richer and the poor—not the
rich—get prison. As a Fortune
magazine writer put it recently:
Before Enronitis inflamed the public, gigantic
white-collar swindles were rolling through the business world and the legal
system with their customary regularity.
And though they displayed the full creative range of executive thievery,
they had one thing in common: Hardly anyone ever went to prison. [vi]
Even in the highly publicized S & L
scandal, few executives actually went to prison in spite of the first President
Bush’s promise: “We aim for a simple uncompromising position. Throw the crooks
in jail.” [vii] And, for those who did go to prison, the
average term was 36 months, compared to 56 months for burglary, 38 months for
car theft and 65 months for drug offenses (see Chapter 3 of The Rich Get Richer
and the Poor Get Prison for statistics on the treatment of S & L crooks
compared to that of lower class criminals; see there also “The Savings and Loan
Roster,” for a list of some “outstanding” S & L criminals and their
The fact is that corporate crooks have
something that poor crooks lack, namely, political clout. Attempts by the U.S. Sentencing Commission
to propose stiffer sentences for corporate wrongdoing in the 1990s were met
with powerful and well-funded lobbying efforts, with the result that proposed
penalties were significantly softened. In 1984, Congress established the U.S. Sentencing
Commission to help create guidelines that would make federal sentencing more
certain and uniform in criminal cases. The guidelines are in the form of a grid
that judges use to plot both the severity of the offense and the nature of an
offender’s past record to find an appropriate range for the sentence. The first
set of guidelines issued in 1987 did not address corporate crime, although the
1990 ones did. However, after a
“steamroller of business lobbyists” greeted the 1990 guidelines, the Commission
released a revised set of guidelines where the potential fines were “slashed,”
mitigating factors were given more weight and aggravating factors (such as a
prior record) were removed from consideration.
An offense that under the original plan carried a penalty of $64,000
carried, after lobbying, a suggested penalty of $17,500; another was revised
down from $136 million to $580,000; and the maximum fine went from $374 million
to $12.6 million. [viii] Then Attorney
General Thornburgh, who had called fighting “crime in the suites” one of his
top priorities, “withdrew the Justice Department’s long-standing support for
tough mandatory sentences for corporate criminals following an intense lobbying
campaign by defense contractors, oil companies and other Fortune 500
In March 2002, after the disclosure of
Enron’s bankruptcy, but before a wave of other frauds was revealed, Fortune
magazine observed: “The double
standard in criminal justice in this country in this country is starker and
more embedded than many realize. Bob Dylan was right: Steal a little, and they
put you in jail. Steal a lot, and you’re likely to walk away with a lecture and
a court-ordered promise not to do it again.” [x]
Consequently, to know if things are really
changing, we need answers to three questions:
Are previously noncriminal but harmful corporate practices being made
into crimes? Are existing crimes being
given tougher sentences? And are the
individuals convicted of corporate crimes getting the sentences that the law
provides? Neither past experience nor
current clues give much ground for optimism.
An article in Business Week cautions us not to expect too much
from Congress this time around.
Entitled “Congress Will Huff and Puff and . . . Do Little,” the article
the savings-and-loan scandals produced prosecutions and a
regulatory overhaul. But the S & L
crisis was as much an accounting debacle as Enron is—and the accountants got
off scot-free. . . . Shrugging off
their profession’s dismal performance, accountants successfully dodged
reforms—despite a hue and cry that included televised congressional testimony
by former S & L exec Charles Keating.
At the end of the day, “the S & L scandal did not result in any
reforms—it resulted in just the opposite, a so-called reform act that made
accountability less important,” notes Melvyn I. Weiss, a prominent securities
lawyer representing plaintiffs. [xi]
And a recent article in the Washington
Post notes that Congress is already losing its zeal to correct the flaws
that led to the Enron debacle. Jonathan Weisman wrote in September 2002,
recently devastated retirement accounts of employees from Enron Corp. and
WorldCom Inc. initially fueled a wave of indignation among lawmakers in
Washington and solemn vows to protect their investments. But the anger that pushed tough new
accounting standards past corporate opponents this summer has already faded [by
September!], lawmakers and lobbyists say, allowing businesses to regain their
strength on Capitol Hill. [xii]
legislation & critique + Conclusion [part 3]
Capitalism - Chart detailing the major wrongdoing
Wall Street Sees Chance To Put Off Reforms: Pitt's Departure, GOP Win Prompt Go-Slow Sentiment
(Washington Post 11/8/02)
in 'largest fine ever' fined Worldcom $500 million to settle all wrongdoing. See
Stockholders Owe SEC Thanks for Almost Nothing" Washington Post 26 May
2003 E 01. "The $500 million comes to something like one-350th of the roughly $175 billion lost by investors on the stock and bonds.
The $500 million is not only a pittance, it's also a pointless penalty that takes money out of the pockets of some MCI victims and puts it in the pockets of others."
Avaleso, Anne and Stephen Tombs, “Working For
Criminalization Of Economic Offending: Contradictions For Critical
Criminology?” Critical Criminology: An International
Journal 11, no. 1 (2002).
Barak, Gregg, Jeanne Flavin, and Paul Leighton, Class, Race, Gender and Crime
(Los Angeles: Roxbury, 2001).
Calavita, Kitty, Henry Pontell and Robert Tillman, Big
Money Crime: Fraud and Politics in the Savings and Loan Crisis
(Berkeley: University of
California Press, 1997).
Cassidy, John, dot.con: the
greatest story ever told (New York: HarperCollins, 2002).
Peter, Russell G. Smith and Gillian Dempsey. Electronic
Theft. Cambridge U Press 2001.
Korten, David, When Corporations
Rule the World (West Hartford: Kumarian Press and Berrett-Koehler
Simpson, Sally, Corporate Crime,
Law and Social Control (Cambridge: Cambridge University Press, 2002).
David and Elin Waring, with Ellen Chayet. White
Collar Crime and Criminal Careers. Cambridge U Press 2001.
[i] Quoted in Clifton Leaf, “White-Collar Criminals: They
Lie, They Cheat, They Steal, and They Have Been Getting Away With It for Too
Long,” Fortune (March 18, 2002), p. 62
“You Bought. They Sold,” Fortune (September 2, 2002), pp. 64-65.
[iii] Peter Behr,
“Chairman Told Workers Stock Was ‘Bargain,’” Washington Post (January
19, 2002), pp. A1, A6; Daniel Altman, “Enron Had More Than One Way to Disguise
Rapid Rise in Debt: Billions Were Listed as Trades Instead of Loans,” New
York Times (February 17, 2002), pp. 1, 26; Peter Behr, “Skilling to Face
Senators, Accusers,” Washington Post (February 26, 2002), pp. A1, A10;
and Gimein, “You Bought. They Sold,” p. 68.
Milbank, “A Roaring Bull Market in Political Trading,” Washington Post
(July 10, 2002), p A8
[v] Leaf, “White
Collar Criminals,” p. 64.
“White-Collar Criminals,” p. 62
[vii] Calavita, Kitty, Henry Pontell and Robert Tillman, Big
Money Crime: Fraud and Politics in the Savings and Loan Crisis (Berkeley: University of
California Press, 1997). p. 131.
Etzioni, “Going Soft on Corporate Crime,” Washington Post (April 1, 1990),
Michael Isikoff, “Justice Dept.
Shifts on Corporate Sentencing,” Washington
Post (April 28. 1990), p. A1.
“White-Collar Criminals,” p. 63.
[xi] Gary Weiss, “Congress Will Huff and Puff and . . . Do
Little,” BusinessWeek (February 25, 2002), p. 116.
Weisman, “Efforts to Restrict Retirement Funds Lose Steam: Indignation Wanes as
Congress Considers Limits on Company Stock Holdings,” Washington Post
(September 7, 2002), p. A1.