Will the Feds Prosecute Corporate Evildoers?

by Arianna Huffington

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.

"Somebody 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' reelection prospects.

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 ten 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 doubt.

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 tip-toeing 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 over 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 swoon.

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?