When corporations kill, why doesn’t anyone go to jail?
Hundreds of bankers were imprisoned for the savings and loan crisis — why doesn’t that happen anymore?
“The public needs to have confidence that there is one system of justice and it applies equally regardless of whether that crime occurs on a street corner or in a boardroom.”
So spoke Sally Q. Yates, US deputy attorney general, on September 9. Eight days later, General Motors, the carmaker whose faulty ignition switches caused at least 124 deaths, agreed to a $900 million settlement. Does that sound like a lot? GM’s revenues last year were 172 times as much. No criminal charges were filed against any of the executives.
Nor, of course, were they filed against most of the masters of the universe who caused the economic meltdown of 2008, the worst such crisis since the Great Depression. Only one top banker went to jail.
It wasn’t always this way. During the savings and loan crisis from the mid-1980s onward, close to a third of the more than 3,000 institutions failed, and depositors and bailout-supporting taxpayers lost billions. Some 1,100 of the criminal architects of the collapse were prosecuted, and hundreds went to jail.
What happened? How did we get to the point where it is more likely you’ll end up in the can if you knock off a 7-Eleven than if you’re responsible for the financial ruin — even the death — of countless people?
Enter the Holder Doctrine. In 1999, then deputy attorney general Eric Holder cautioned against prosecutions where the collateral consequences could be corporate instability or collapse — the forerunner of Too Big to Fail.
The author of the book Too Big to Jail , University of Virginia Law School professor Brandon Garrett, says a lack of resources when going up against heavily lawyered big businesses contributed to the Justice Department’s don’t-prosecute predilection. But he adds this: “I’m puzzled that the misbehavior of high-profile individuals is described in great detail in documents presented to the Justice Department by firms under investigation, yet no prosecution resulted.”
I’m sure the guys who robbed that convenience store would have been happy to contribute to memos explaining who did what to avoid jail time, too.
Sarah Trautwein was one of those 124 whose death was caused by GM’s malfeasance. The 19-year-old was driving her Chevy Cobalt in 2009 when her car went off the road and hit a tree. Problems with the ignition switch had been identified within the company as early as 2001. The first death to result occurred in 2004. Recall didn’t happen until 10 years later. “GM was more interested in saving money than saving lives,” says Sarah’s brother, Phil, a graduate assistant line coach for Boston College’s football team.
To compound the injustice, not that one needs to, multimillion- (or billion-) dollar settlements don’t really cost the individuals responsible a penny — shareholders pay the freight. And get this, depending on how the deal is structured, the settlement costs might be tax-deductible, as they are for BP. When the Justice Department announced a settlement valued at $20.8 billion with the company responsible for the 2010 Gulf of Mexico oil spill and the deaths of 11 people on an oil rig, it didn’t announce that the corporation may be able to write off $15.3 billion of the total payment as an ordinary cost of doing business.
Some keep-hope-alive types saw a cause for optimism even before the AG memo in the recent prosecution, conviction, and sentencing to 28 years in prison of the president of the Peanut Corporation of America. The PCA was the source of a salmonella outbreak that killed nine and caused hundreds more to become ill. It wasn’t an accident. Evidence against the president, Stewart Parnell, included an e-mail in which he directed a manager to “just ship it” rather than wait for results of salmonella testing.
But most cases don’t have that kind of smoking gun. The true test of the new Justice Department policy may be Volkswagen. After lying to federal regulators, Volkswagen has admitted it used software that allowed it to cheat on air quality tests on its diesel cars. The buyers of a half million such vehicles were victims of a bait and switch — promised fuel-efficient, environment-friendly cars, they got emissions of nitrogen oxides at as much as 40 times permissible levels, the kind that causes smog, respiratory ailments, even death.
While I dream of hearing “guilty” pronounced by a jury foreman in a case like this, I’m brought back to reality by images of Jamie Dimon, head of JPMorgan Chase, and Lloyd Blankfein, lead guy at Goldman Sachs — whose banks paid billions in fines between them — entering the White House for a state dinner. Blankfein sure looked dapper in his perfectly tailored black tuxedo.
I don’t get it. Corporations are human when it comes to political contributions, but not when it comes to crime?
I am not alone. Pitching his new book, The Courage to Act, former Fed chief Ben Bernanke told USA Today : “It would have been my preference to have more investigation of individual action, since obviously everything that went wrong or was illegal was done by some individual, not by an abstract firm.”
The brother of GM victim Sarah Trautwein doesn’t miss a beat when asked if some GM executive should have gone to jail and if seeing a CEO in a Day-Glo onesie would deter future corporate crime: “Of course.”
But Garrett, the author of Too Big to Jail, doubts that the next bankster or other CEO will see such consequences and think twice: “I’ m not sure any executive thinks this could happen to them. It’s like a mentally ill murderer, not rational about risk.”
So, will it continue to be tuxedos or will we someday see prison jumpsuits? Here’s hoping orange becomes the new black.