Why don’t more white collar criminals go to prison?
A new book with a title that is provocative (or distasteful, depending on your point of view), asks and attempts to answer this question. The Chickenshit Club by Jesse Eisinger, published by Simon & Schuster, was clearly an enormous undertaking. Eisinger has offered us a fascinating financial history, compiled with painstaking journalistic research and great insight, into the multi-layered bureaucracy of the federal government.
In his compelling study, Eisinger has his finger on the pulse of greed, compromise, overreach, excess, and deceit — in short, the story of how closely connected finance and white collar crime actually are throughout the country. Over and over again, Eisinger reminds us of how dysfunctional (or self-serving) our government has been when prosecuting white collar crime. According to him, the cause and the effect of this is that: “The rich and powerful have always been rich and powerful.”
How White Collar Criminals Stay Above the Fray
Eisinger offers a number of reasons that white collar criminals continue to thrive. Some are his own insights and some are attributed to Edwin Sutherland, the sociologist who coined the phrase “white-collar crime.” These reasons include the facts that white-collar criminals:
- Are often entrenched in legitimate, respectable careers
- Have an elevated financial and social status that enables them to mold the law to serve their own interests
- Frequently manage to commit crimes that are just barely on the right side of the law
- Are savvy enough to hire (or be!) lawyers who know the intricacies of the law well enough to manipulate them in a convincing manner
The result of all this finagling is, from Eisinger’s viewpoint, the reason that we will always have what Al Capone referred to as “legitimate rackets.”
Beyond the creativity of the white-collar criminals themselves, the weight and complexity of the federal bureaucracy is partially to blame for its own failure to successfully prosecute white collar criminals. In many ways, white collar criminals, who need not (by definition) abide by ethical or legal restraints, have more flexibility which in turn offers them increased efficiency. In other words, the federal bureaucracy, particularly the U.S. Securities and Exchange Commission and the U.S. Department of Justice, are hampered by imprecise or ambiguous laws, clever criminals, and the fact that the burden of proof is always on them.
Successes Are Few and Far Between
Eisinger points to certain especially aggressive and ambitious government officials who have succeeded during what he refers to as the “silver ages” of prosecution — Robert Morgenthau, the former U.S. attorney and New York County district attorney, Stanley Sporkin of the SEC, and Judge Jed Rakoff. He attributes their prowess to their discoveries of inventive ways to interpret the law and their bravery to make use of their discoveries in the courtroom. This combination, he postulates, enabled them to dismantle some seemingly invulnerable edifices of corporate crime.
One pinnacle of success was the dissolution of Enron Corp. in 2001 when The Department of Justice (DOJ) actually indicted the accounting firm of Arthur Andersen LLP for its participation in criminal activity. This success required a great deal of cooperative effort, involving 40 FBI agents and 10 prosecutors. As is usually the case, pressure had to be brought to bear to make the collaboration bear fruit. In this case, in order to get Chief Financial Officer Andrew Fastow to testify against his former colleagues, prosecutors indicted his wife.
The Backlash and Its Enduring Effects
Prosecutorial power did not, however, remain high. In 2005, The Supreme Court unanimously overturned the Andersen verdict. Important Enron convictions were overturned as well. According to Eisinger, there is enough blame to go around for this backlash, including prosecutorial errors and immense pressure not only from the targeted corporate entities themselves, but from the media. Eventually, the DOJ became wary, revising its policies regarding convicting corporations. Throughout the country, courts and prosecutors became more and more cautious until the DOJ became fearful of prosecuting companies at all, becoming much more willing to settle. Eisinger’s disturbing conclusion is that, by the time the great financial crisis hit, the DOJ had become too cowardly to properly punish Lehman Brothers, Merrill Lynch, Morgan Stanley, or any of the other firms that had committed serious white collar crimes.