The Fight Against Corporate Crime is Far From Over

Blog Post
July 25, 2017

In the wake of the 2008 financial crisis 8 million Americans lost their jobs, 6 million Americans lost their homes and only one mid-level executive was sent to prison. How could this be?

Jesse Eisinger, New America fellow and Pulitzer Prize-winning senior reporter for ProPublica, writes on this growth of corporate impunity — and the resulting decay in justice — in his new book, The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives. For the book’s launch event, co-hosted by New America NYC and ProPublica, he was joined by former Assistant U.S. Attorney for the Southern District of New York Carrie H. Cohen, Senior Judge of the United States District Court Nicholas G. Garaufis, and Brooklyn Law School professor K. Sabeel Rahman to address a startling fact: white-collar cases taken up by the Justice Department have dropped more than 40 percent in the past 20 years.

Speaking to a sold-out audience, Eisinger pointed to the DOJ’s prosecution of Enron, a marquee case of fraud in the era following the burst of the Nasdaq bubble. The Bush administration, despite having ties to the energy company, pursued this case by assembling a task force that singularly dedicated resources to this investigation. Treating it like a mob investigation, they worked up the chain of Enron, turning over lower-level individuals who could admit to both their own malfeasance as well as that of their superiors. 

Many executives were indicted, and some were even sent to prison. However, this investigation — and the subsequent investigation of Arthur Andersen, Enron’s accounting firm — resulted in tens of thousands of workers losing their jobs. The DOJ has not pursued a large company like this since, and the results is that, according to Eisinger, it “has lost the skill and will” to conduct the same type of investigation today.

“We see the failures to fully prosecute in retail companies like Walmart and in industrial companies and tech companies and pharmaceutical companies. In a nutshell, post-Enron scandal, there was a backlash against aggressive prosecution. It came in a variety of waves that put the DOJ on their heels,” said Eisinger.

Cohen, the public prosecutor turned private defender, countered that the Justice Department has not eased up on corporations, but has rather pursued a more thorough strategy. She asserted that the government cannot prosecute for the sake of making headlines; rather, it must discern between cases built on negligence and those built on criminal intent. Negligence is not criminally punishable, and the public cannot appreciate the time required to develop the evidence necessary to make this distinction.

One of Eisinger’s most significant critiques of the DOJ was its current tendency to prosecute corporations instead of individuals. Cohen’s rationale for this was that if there is a corporation conducting illegal activity, the company entirely should be punished:

“Why would you not want a corporation that has a culture, if a prosecutor can prove it, of allowing misconduct underneath it not be prosecuted? Prosecuting corporations is very positive opposed to trying to prosecute one person who the company may throw under the bus.”

Judge Garaufis pointed out that often it is low-level members of corporations who bear the brunt of internal investigations financed by the companies’ boards as a way to protect its top executives.

Whatever the motive, the large impact is undeniable: in 2002 the DOJ actively pursued one out of five white collar cases. Today, they take one out of ten, the lowest in 20 years. In the past 10 years, there have been 400 settlements with companies. The decade prior saw only 18. This shift is dangerous because, according to Eisinger, while settlements appear to “give credence to both sides," they are more often the result of a large monetary arrangement, in which details often remain undisclosed.

If prosecution and settlements aren’t shifting corporate culture for the better, Judge Garaufis proposed a method of punishing corporate crime that may prove to be more effective:“The best way to punish a corporate executive who has been involved in acts that are not appropriate when handling corporate assets is to take them away from them.” He elaborates: “The shareholders will then kick the bums out if the end result of the investigation is the value of the corporate stock and bonds have gone down.”

The final segment of the conversation brought us to the current political climate. In response to questions about the previous and current administrations, Eisinger did not pull any punches. He believes it is certainly the case that former U.S. Attorney General Eric Holder and the Obama administration were lax in their prosecution of white-collar crime. However, he said he is much more afraid of what current U.S. Attorney General Jeff Sessions has in store. With a corporate executive in the White House and a very weak precedent set by the DOJ in the past decade, the problem of corporate impunity, is far from solved.