For many people, the idea of a criminal conjures up the image of a young hoodlum (probably black) with a gun, rather than a middle aged white man in a high-end Italian suit with a solid gold Rolex, french cuffs, and a tasteful business card with a Wall Street office address. Few have any conception of the extent of social damage done by nonviolent crime often perpetrated by fraud and deceit–white collar crime.
THE COSTS OF WHITE COLLAR CRIME
People are frequently astonished to learn that that from a strict dollars-and-cents perspective, crime in the streets is so dwarfed by crime in the suites that the measurable effects of violent and other street crime falls within the margin of error of the effects of white collar crime. That is to say, statistically speaking, it doesn’t count. This is nonetheless true.
The dollar costs to society of reported “conventional” (FBI index) crimes run around $13 billion, roughly four billion of which is attributable to crimes against property. If we cold-heartedly estimate value of a life at six million dollars (a standard cost-benefit measure), the cost of the rough 15,000 homicides a year is roughly $10 billion.
The direct dollar costs of white collar crime, e.g., fraud, money-laundering, and the like, are staggering: $200 billion a year from occupational fraud, $123 billion from tax fraud, $53 billion from bank fraud, $109 billion from mail fraud, $10 billion from insurance fraud, $35 billion from product safety, environmental violations and price fixing, $35 billion from fraud against government programs, $44 billion from others. That is about $609 billion –maybe as high as $1 trillion in direct losses.
Indirect costs are also associated with white collar crime: higher taxes, increased cost of goods and services, higher insurance rates, screening and surveillance equipment to monitor employees, greater prosecution costs on a per crime basis as compared to “conventional” crime (because of the cost to detect, investigate, and prosecute complex criminal conduct), and cost of capital to honest businesses due to loss of investor confidence in financial and business markets. Environmental crimes and work-related diseases generate related costs of medical treatment and consequential absenteeism from work, increased health care costs to businesses providing insurance for employees, and costs of clean-up.
Other less quantifiable costs include the psychological trauma of victimization and alienation, delegitimation, and cynicism because white collar crime erodes trust in the government and the institutions it promotes. Though perhaps not enough, since the promise to run the government “like a business” is not taken a warning flag but as if it were a good thing, even when made by billionaire politicians whose business model is to declare bankruptcy multiple times, stiffing the creditors without stopping the culprit, and despite the fact that people’s actual experience with business, especially big business, is often less than wholly positive.
“Who are you going to believe, me or your own eyes?”
“NO BODY TO JAIL, NO SOUL TO DAMN”: CORPORATE CRIME
Corporations,. as everyone knows, are people, or anyway, persons (for 14th amendment purposes) with rights–and they can criminals be too. A classic 1956 study found that all the 70 largest corps in the US had an adverse judicial or administrative decision involving lawbreaking over 45 years. Not all these were criminal, but also included, e.g., health and safety or labor law violations. One advantage of being a major campaign contributor is the privilege of having many of one’s worst peccadillos not classified as crimes. American workers are twice as likely to die at the hands of their employers, who may be slapped with a cost-of-doing business OSHA fine rather than a criminal charge, as they are to be killed by a hoodlum. Still, 159 of the 980 decisions studied were criminal convictions. 98% of culpable corporations were recidivists, with at least two adverse decisions. The average number of adverse decisions was 14. If being a four-time loser makes you habitual, 90% of corporations were habitual offenders. More recently (1975-76), a study of federal enforcement actions against 582 parent corps found that 64% had at least one adverse decision, with an overall average of 2.7 actions. Fortune 200 multinational corporations accounted for 70% of enforcement actions. In 2012, a Senate
Still, 159 of the 980 decisions studied were criminal convictions. 98% of culpable corporations were recidivists, with at least two adverse decisions. The average number of adverse decisions was 14. If being a four-time loser makes you habitual, 90% of corporations were habitual offenders. More recently (1975-76), a study of federal enforcement actions against 582 parent corps found that 64% had at least one adverse decision, with an overall average of 2.7 actions. Fortune 200 multinational corporations accounted for 70% of enforcement actions. In 2012, a Senate subcommitte fiound that the London-based multinational bank HSBC engaged in a wide array of “money laundering, drug trafficking, and terrorist financing.” HSBC acknowledged that “in the past, we have sometimes failed to meet the standards that regulators and customers expect.” (Ahem.) No prosecution resulted.
(WHITE COLLAR) CRIME PAYS
As The New Yorker explains, below white collar crime relatively safe and highly profitable. The likelihood of being prosecuted is quite small. Less than one-half of one percent of DOJ prosecutions in 1994 involved corporate crimes endangering human life and safety. In pursuit of easy convictions where DOJ or the FBI would face deep-pockets Biglaw firms like Kirkland & Ellis (where I used to work), they tend to pick on the little guys and avoid prosecutions of the powerful. Studies have generally found the probability of detection–prosecution is another matter–of white collar crimes ranges from one in three to one in six. On average, it takes 10+ months for a white collar criminal case to be filed, nearly three times as long as for the average drug case. Complex, document-laden white-collar cases frequently take years to complete.
The extent of fraud involved in the 2008 subprime real estate crisis that nearly took down the world economy is unknown, but it must have been substantial. However no one — repeat — no one — was prosecuted for his role in it. At least in the turn of-the-millennium crisis of 2000, a few big-time players like Jeff Skilling of Enron were prosecuted, convicted, and sent to prison for long terms–under the George W. Bush administration. Since then, the risk has been that one might not be bailed out, and even that risk diminishes with the size of what students of white collar crime call the racketeering enterprise, a term from the RICO statute. “To big to fail” means in practice, “too big to jail.” The median jail term for fraud is just 12 months; even violators of federal pornography and prostitution laws receive an average 33 months behind bars, while drug traffickers are sent away for a median of 60 months.
*An ancient writing tool. But “laptop computer” doesn’t scan as well. The title is from a song by Woody Guthrie.
Parker “Big Red” Fountain pen.