The government’s approach to policing corporations doesn't make much sense. Individual managers or employees acting alone or in collusion commit crimes in the name of the corporation -- bribery, say, or a little book-cooking to cover up some financial problem. An investigation ensues and after the government and corporate lawyers are done, no one admits guilt, no one goes to jail and the corporation promises to enact policies to keep it from doing again that which it isn’t admitting to having done in the first place.
Oh, and there’s a fine to be paid, often quite massive, that is meant to punish.
But none of it really seems to make a difference.
At the New York Review of Books, Jed S. Rakoff, a federal judge in Manhattan, dives into the squirrelly prosecutorial logic in his review of “Too Big to Jail: How Prosecutors Compromise with Corporations,” by University of Virginia law professor Brandon L. Garrett, which examines the use of “deferred prosecutions” in dealing with corporate crime. The theory is that the public interest is served less by jailing the individual miscreants than changing the corporate culture so the corporation won’t sin again.
The problem with that approach is the lack of incentive to truly change the culture. Fines are rolled into the cost of doing business and hit shareholders, not those responsible for the infractions -- unless the corporation takes the additional step of firing the people involved. And if the fine is big enough to affect profitability, the real weight lands on innocent workers who lose their jobs as the corporation cuts expenses.
But as Rakoff points out, tossing a few suits in prison would be more effective than slapping corporations with fines and squeezing compliance programs out of them -- programs that rarely seem to have much effect (he repeats Garrett’s example of multiple deferrals for pharmaceutical giant Pfizer, all for essentially the same type of infractions).
Rakoff has addressed a variation of this in previous articles, including one that explored why, despite apparent crimes that led to the Great Recession, no one went to jail.
He raises strong arguments to which I will add, it’s hard for the public to have much faith in a government enforcement system in which no one ever seems to get punished, and in which corporations effectively buy their way out of legal jams.
The government should review its standards for deciding when to prosecute individuals who commit crimes on behalf of corporations, with an eye toward holding them accountable for their criminal behavior.
Follow Scott Martelle on Twitter @smartelle.