July 8, 2011


Hands Off White Collar Crime

By Mark Wachtler

July 8, 2011. New York. For almost four years, the American people have heard about a grand, covert, financial scam that collapsed America’s entire economy, starting with the housing industry. And for just as long, they’ve waited patiently for someone, anyone, to go to jail. While they wait, the architects of America’s economic collapse are still sitting pretty in their Wall Street penthouses. But now we know why.

In case you missed it, the New York Times dropped a bombshell yesterday, delicately accusing the Bush and Obama administrations of endorsing a program to look the other way regarding white collar criminals. In a move that many would argue had protected criminal wrongdoing in the financial industry, the very same players being protected, would go on to single-handedly cause the collapse of the US economy. If these very same people and corporations were brought to justice the first time, they wouldn’t have been in a position to do the damage they did a few years later.

According to the New York Times article, the practice of ‘deferred prosecution agreements’, or ‘non-prosecution agreements’ in some cases, began in the early years of the George Bush Jr. administration. As early as 2004, a little known company named AIG had reached a deal of ‘deferred prosecution’ with the Justice Department. Avoiding any criminal prosecution at all, AIG simply paid a fine of $126 million dollars and the charge of helping their clients falsify financial statements just went away. The company was free to continue any criminal activity it wanted, understanding that none of the criminals would every go to jail. AIG would simply have to share some of the ill-gotten loot with the government.

Over the following year, other companies would strike similar financial pay-offs in exchange for the Justice Department’s agreement not to try and prosecute any of the responsible individuals. Computer Associates International would be next, followed by Bristol-Myers Squibb and Prudential Financial. The practice would continue right on through last week when JP Morgan Chase walked away with a fine that equaled their profits for one single day. Goldman Sachs reached a similar deal for $550 million dollars.

One of the more public cases noted by the Times article is that of Beazer Homes and their 2009 settlement with the government for defrauding home borrowers leading up to the housing collapse. While HUD officials were in the process of investigating Beazer, the US Justice Department stepped in and demanded HUD stop until Beazer’s internal investigation was complete. That same year, the Justice Dept settled with Beazer for a payment of $55 million dollars. That was roughly the same amount Beazer paid the law firm that conducted the investigation the Justice Dept relied upon.

While Beazer Homes executives celebrated, HUD inspector general Kenneth M. Donohue was outraged. In a letter to Attorney General Eric Holder, Donohue wrote, ‘As a law enforcement official for over 40 years, I have never witnessed a like action in any of my varied dealings.’

The fact that multi-national corporations have been, and continue to, buy their way out of trouble for repeatedly breaking the law isn’t even the most shocking revelation from yesterday’s New York Times article. Most experts, an entire list of whom wished to remain anonymous, believe the real travesty is that the Federal government has been on the side of the criminals all along.

According to the Times, ‘Another example of this more cautious prosecutorial strategy: Government lawyers now go to companies earlier in an inquiry, and often tell companies to figure out whether improper activities occurred. Then those companies hire law firms to investigate and report back to the government. This “outsourcing” of investigations — as some lawyers call it — has led to increased coziness between the government and companies, some critics say.’

 Basically blaming a lack of resources on the part of Federal regulators, large companies, especially large financial corporations, were left to police themselves. In 2005 however, the reason for not investigating white collar crime had taken a sinister turn. Instead of looking the other way because there were more criminals than cops, the Justice Department began looking the other way because prosecuting criminals “was bad for business”.

That was the year Justice Department officials met with a Bush administration cross-agency task force called the Corporate Fraud Task Force. At the meeting, Deputy Attorney General James Comey is alleged to have asked, “Is American business being hurt by the Justice Department’s investigations?” The agenda and tone of the question itself shocked many in attendance. But it was only a hint of what was to come. Two and a half years later, the American economy had crashed.

It was those first months of the crash that the New York Times article centers around. Documents reveal that when the financial industry’s house of cards collapsed, powerful executives, possibly in fear of prosecution, had lobbied the Bush administration and its Justice Department to officially change its enforcement and investigating guidelines. Ask and it shall be done.

The new guidelines ended a brief era of prosecutions rivaling the famed ‘Untouchables’. Corporate executives, actual people, went to prison in cases such as Enron, WorldCom, Tyco, Adelphia, Rite Aid and Imclone. Federal prosecutors had waged a legal war on behalf of the American people. But in the middle of 2008, they were told to stop.

The Times summed up the 2008 Justice Department Directive saying, ‘The guidelines left open a possibility other than guilty or not guilty, giving leniency often if companies investigated and reported their own wrongdoing. In return, the government could enter into agreements to delay or cancel the prosecution if the companies promised to change their behavior.’

By 2010, it was obvious that tactic hadn’t worked. While a select few corporations blew the whistle on themselves, most continued their criminal fraud for years. In the most famous case of the time, Bernard Madoff continued his criminal practice right under the government’s nose for decades. With that highly publicized case being the exception, countless other corporations have been let off with a small fine and no admission of wrongdoing.

The Times also reports that in 2010, the Securities and Exchange Commission adopted the same guidelines, only taking them one step further. In cases such as the investigation into Moody’s rating agency and their taking payments for rating worthless funds as triple-A, the SEC chose to simply publish a report detailing wrongdoing at Moody’s rather than file charges or negotiate a fine. Public acknowledgement of criminal activity is punishment enough.

Special thanks to the New York Times

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