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Corporations and execs need penalties that hurt

The huge fines levied on companies are chump change. Plus, experts say one thing effectively deters white-collar crime: putting the responsible executives in jail.

January 05, 2013|Michael Hiltzik
  • Amgen sells about $2 billion of Aranesp annually. For mismarketing the anemia drug for years, the company paid just $762 million in fines and penalties.
Amgen sells about $2 billion of Aranesp annually. For mismarketing the… (JB Reed, Bloomberg News )

If you're concerned about corporate crime, 2012 looked like a pretty successful year for the good guys.

The Thousand Oaks biotech giant Amgen paid $762 million in fines and penalties and pleaded guilty to a federal charge related to illegal marketing of its anemia drug Aranesp. Britain's GlaxoSmithKline and Illinois-based Abbott Laboratories paid $3 billion and $1.5 billion in government penalties, respectively, in connection with their off-label promotions of blockbuster drugs. Glaxo's was the biggest drug company settlement in history.

The global bank HSBC paid a record $1.92 billion to settle federal accusations that it operated a huge money-laundering scheme for Mexican drug dealers and Middle Eastern terrorists. BP agreed to pay $4.5 billion and plead guilty to 11 felony counts in connection with the 2010 Deepwater Horizon oil spill in the Gulf of Mexico. It was the biggest federal criminal penalty ever.

To the companies, however, these big numbers are just chump change. Typically they don't even represent repayment of ill-gotten gains — more often merely the cost of doing business. And to the public, they're insults piled atop the injuries caused by the firms' wrongdoing.

"These fines are a carny act to keep the rubes happy," according to William K. Black, who was a thrift regulator during the savings and loan crisis of the 1980s. "It's cynical — the art is to make the amount sound large but make sure that it has no material effect."

What might really get the attention of the CEOs and other top executives of lawbreaking companies would be some time in the hoosegow. Does that sound quaint? If so, it's because not a single high-ranking executive of any of the companies mentioned above faced indictment or was even forced to step down.

The absence of criminal cases against perpetrators of the 2008 financial crisis is a continuing scandal. It's not as though there haven't been suitable candidates for the docket. Angelo Mozilo, the chairman of Countrywide Financial, was the face of mortgage company excesses in the housing bubble.

He settled Securities and Exchange Commission charges against him for $67.5 million (of which $45 million was covered by insurance companies and Countrywide's new owner, Bank of America). But although SEC documents showed he was fully aware that some of the mortgage products his firm was peddling were toxic garbage, federal prosecutors dropped their criminal case.

Earlier scandals produced plenty of pelts. Starting in the 1980s, the savings and loan crisis generated 30,000 criminal referrals from one regulatory agency alone, the Office of Thrift Supervision, according to Black, who oversaw the referral process for federal regulators as litigation director for the Federal Home Loan Bank Board and in other posts. Fast forward to the 2001 collapse of Enron. Its CEO, Jeffrey Skilling, is still serving a 24-year jail term. He might have been joined there by Enron Chairman Ken Lay, had Lay not died before his sentencing for 10 counts of fraud and other charges in 2006.

Federal prosecutors today say multibillion-dollar fines and related good-behavior pledges are as good as jail time at discouraging bad behavior — "the same punitive, deterrent and rehabilitative effect as a guilty plea," as Lanny A. Breuer, the Justice Department's white-collar crime chief, said in a speech last year.

But that's nonsense. For a corporation, the fines aren't even that big. The HSBC settlement comes to about 11 days' worth of revenue for that bank holding company; Abbott's about two weeks' worth. Amgen sells about $2 billion of Aranesp every year; the mismarketing for which it forked over $762 million lasted for years.

Prosecutors' interest in corporate white-collar cases has been dissipating like the air in an old balloon. The cases are complex and time consuming and require facts to be gathered by aggressive regulators (themselves a vanishing breed). After 9/11, national security became the hot field for ambitious crime fighters. The fewer convictions for corporate crime there are to make the news, the less interest there is in finding more. An important turning point came in 2008, when then-U.S. Atty. Gen. Michael Mukasey refused to appoint a task force to investigate mortgage fraud, dismissing it as "white-collar street crime."

Even when prosecutors are handed a weapon, they don't use it. The post-Enron Sarbanes-Oxley Act carries stiff criminal penalties for top executives who sign off on false financial statements. Statistics are hard to come by, but when the law marked its 10th birthday in mid-2012 the number of prosecutions it had produced appeared to be less than five.

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