Has It Become Impossible to Prosecute White-Collar Crime?
bloomberg.com
bloomberg.com
A few weeks ago, I was doing hard time with people who, due to fairly outrageous "re-offender" statues, were serving 15 years for stealing $50 items, or 5 for walking out of Home Depot with a couple hundred dollars in a cart.
These assholes steal millions, often from the elderly who trusted "the system", and just walk away scot free because the jury doesn't understand it? It is beyond outrageous and really shows, to me at least, how our entire CJS in the US has become an sick disgusting joke.
I got 15 months for having a small amount of heroin and an oz of weed...I almost lost almost everything I owned and left my clients in a big mess, and these guys don't get any time or even a felony conviction to mess up their lives like mine does?
Fuck them and fuck the douchebag prosecutors who are afraid of losing one damn case and messing up their all important conviction ratio.
[edited]
Everytime I hear a finance person use the excuse of 'you wouldn't understand' to a complex, I can't help but correlate it to a developer who's obfuscated code tell another developer they wouldn't understand, without acknowledging that they obfuscated the code.
I'm sure I understand, you just don't want me to because then it would be obvious you are just ripping people off to make more money for yourself / company. Kind of like how the government has used 'enhanced interrogation' rather than the common definition of torture to get around breaking the law.
When the investment banks were partnerships, the partners had plenty of 'skin in the game', and favored stable systems. Going public took the pressure off of the leadership's individual fortunes... and stability seems to have suffered.
Think of the VW "scandal" at what point does a piece of code go from being a really effective emissions blocker to being an illegal emissions blocker? If they implemented and trained up a neural net then what piece of code is the violator, the guy who wrote the unit tests the neural net trained on, or the evolved coefficients in the network that humans never wrote, or the manager who told them to write an emissions routine using a NN or the regulators who entrapped them by knowingly writing bad regs with the intention of the .gov selecting winners and losers by selective prosecution?
Even if the person isn't greedy, they'll resent the loss of status that comes with, "wait, all you do is add entries on the CMS interface?" or "all you do is make the risks less obvious to auditors?"
As Mal says, "50% of the human race is middlemen, and they don't take kindly to being eliminated."
Neglecting the fallacy of the presumption that one can just volunteer, it is interesting to think about the way the world might be shaped should "more educated" individuals be the ones who solely shape public policy and case law. It's not very democratic in the pure sense of the meaning, but certainly interesting as a thought experiment.
I've seen states at least claim that being registered to vote is not necessary to be called for jury duty. It gets a bit hand-wavy after that but supposedly they also draw from, at least, driver licenses as well.
To me, it's more than a little ironic how often software professionals look at what finance professionals do and ask the equivalent of "why the hell does Twitter need all this code? It's just 140 character messages!"
> ... you just don't want me to because then it would be obvious you are just ripping people off to make more money for yourself / company.
Agree. If your car pollutes more than other cars and runs on the blood of innocent consumers, hiding that in the explanation of how a regular car works is not an excuse.
Anyone who says "You wouldn't understand" is hiding something. If you can't explain it to me, do you even know what the fuck you're talking about?
That's an abstract explanation of what Twitter's code is, it doesn't get you anywhere closer to being able to actually understand the code.
Just like I wouldn't expect a layperson person to be able to find and fix a bug in a codebase, I don't think they can reliably evaluate the nuances of the financial system.
Imagine your case depends on proving that only a guilty person would have failed to shard a particular database. It's not enough to just explain at the highest possible level the concept of splitting up a database. You gotta get the jury to understand it enough to know why you do it, and why it would be so out of the norm to not do it in a particular situation that the person must have had a nefarious motive.
- We agree I'll give you max 1L of water, so you prepare a 1L bucket. Then I pour 2L of water into your bucket - you end up with a mess. (exploit version: We agree that if any water hits the ground, I can force you to do anything.)
- I give you card with typical form to fill in (squares for every letter). First 5 squares are for first name, next 5 are for last name. You fill in "Michael" as your first name overflowing into last name space.
- etc...
Sure, it doesn't capture all intricacies of the mechanism, implementation, side effects of the overflow, etc. But don't tell anyone they wouldn't understand the concept.
"The data on a computer is organized into ordered bytes like the file cabinet, and telling a program to go to some byte's location plus some offset can result in it accessing data that it shouldn't touch, if other safeguards aren't in place."
That's a great analogy, by the way.
This is the way one uses the 'buffer overflow' problem in computers to manipulate data. With a little skill you can use it to do serious damage. Consider, for instance, what would happen if we were at an engineering company and slipped in a new blueprint for a machine instead of a personell note. Later someone else would pick up the design and the factory, none the wiser, would proceed to build our machine, instead of the one they wanted.
>If your car pollutes more than other cars and runs on the blood of innocent consumers, hiding that in the explanation of how a regular car works is not an excuse.
I think the takeaway here, is in the real world cars don't visibly run on the blood of innocent consumers. The means of procurement of gasoline is wrapped up in many different corporations, industries and nation-states which makes it incredibly difficult to ascertain blame.
I could make the argument that your volkswagen runs on the blood of innocent servants in Saudi Arabia. Who is at fault? Mercedes, Chevron, The Royal House of Saudi, A select few in that group, The American Government, or you?
Frankly, it's not surprising that the average person can't understand complex finance and thus complex financial litigation.
> Everytime I hear a finance person use the excuse of 'you wouldn't understand' to a complex, I can't help but correlate it to a developer who's obfuscated code tell another developer they wouldn't understand, without acknowledging that they obfuscated the code.
The difference is that a jury is not other finance people. I don't expect jurors to understand financial crimes any more than I expect a random member of the public to understand a complex computer bug.
Doesn't that make it a conversational endless road?
Being able to prove or disprove it would make it a dead-end, getting the conversation to stop :-)
What does that have to do with TFA at all?
I'm 100% certain that the prosecutors of financial crimes are absolutely trying to get the jury to understand. A win in this space is great for your career and they have every reason to hope for it.
The response from the Justice Department seems to be, instead of failing at doing the same thing over-and-over, let's do a different, simpler thing. I agree that is not a good thing. But I don't think it's reasonable to argue they should keep doing the same thing over-and-over, expecting failure. And I don't have enough insight into the problem to say how they could successfully prosecute these complex cases.
There is a pretty straightforward solution. I'll leave to the reader whether or not it is a good one.
Redefine the crimes so they are easier to prove. In many cases that is going to involve moving from a mens rea (guilty mental state) of intentionally to recklessly, negligently or even eliminating mens rea altogether and just requiring an actus reus (guilty act). In some cases that might mean criminalizing more acts of omission instead of requiring proof of an overt bad act.
I want to be clear that this wouldn't be costless. It goes against much our existing framework for what makes people criminals. It would increase the chance that someone who made honest mistakes would be criminally punished. But remember Blackstone said that it is better for ten guilty men to go free than one man suffer, not one hundred, not one thousand and certainly not all the guilty men. And he was writing in an era when all felonies were capital crimes.
A small percentage of murderers getting off on technicalities is something a society can live with, even be proud of in a strange way, but when the exception swallows the rule that society is playing with fire.
I think that's a much bigger crime than anything financiers have supposedly committed.
Maybe it's working perfectly to protect financiers from being prosecuted for immoral but legal acts.
Also what crime were you accusing me of having committed? Unlawful proposing of legislation Morgante doesn't like?
(GP wasn't claiming that you were literally committing a crime, rather suggesting that making it easier to convict innocent people would be a "crime" in a rhetorical sense)
If I'm a superqualified, incredibly careful, good-guy explosives chemist, I still don't get to whip up a batch of Octol in my garage. The law deems explosives manufacture an inherently dangerous activity subject to strict liability. No mens rea needed, intent is irrelevant, conduct is all.
Strict liability principles have worked fairly well. Maybe they're worth trying in the financial sphere. I wonder how we would define an inherently dangerous financial activity?
People who steal millions or billions can hire an army of lawyers that can bring so many expert witnesses that can make the jury doubt in the existence of the Sun beyond a shadow of a doubt.
Several years ago there was a case that a guy got caught speeding, he petitioned the laser speedometer thingie to be sent to a impartial lab for testing on his own dime and got enough expert witnesses to rip that thing to shreds claiming that the device was inherently flawed and that the police didn't calibrate it and maintain it properly including leaving it locked in the car where the high temperatures could affect it's accuracy. He then also went own and brought evidence that other police equipment like the speed tracking radar might not be accurate on his car because of it's design and the fact that it was build of composite materials and not metal which what the speed tracking radars they use are calibrated for.
This case and several like it combined lead to a sweep of people appealing every speeding ticket which eventually got a law passed that every speed enforcement system which gets certified by the local standards institution cannot be brought to question in court.
When you drive a car with 5 or 6 zero's in it's price tag you probably have 10 more zero's in your bank account, which means you can spend allot of money on casting doubt on everything from the devices that the polices uses to the competency of their operators.
If you are a guy who got speeding in a 2006 Jetta? well pay the fine.
So while I can understand how a case involving complex financial fraud can be complicated I'm also quite aware just how easy it is to complicate things, I work for a consultancy which means I work with people who's their definition is to shuffle shit out of their mouth until the case gets complicated enough to warrant the hefty price tag they want to charge for that work, 10,000$ an hour lawyers should be able to bring that to a whole new level.
--- Edit for clarity.
Yeah, color me surprised that this results in weak juries.
Change the jury system/procedure to something better designed to generate trustworthy outputs. It seems simple enough in concept and there are many improvements that can be trivially suggested to improve the system even if we retained the idea of picking N people from the general population.
The former top justice official is on record stating they don't prosecute becuase they fear systemic risk, ie too big to jail, too big to fail, all just mottos and lies to let your fellow country club members off the hook.
Libor fraud? Pass. Money laundering for drug cartels? Pass.
Would you believe it just if someone robbed you, was caught and had a pay a fine of half the amount they took?
The government essentially allows criminal fraud by the powerful and then takes their cut of the profits, meanwhile the weak and poor continue to suffer, but luckily we got intellectuals who can explain away how its all too complicated.
Complete and utter bullshit.
These people are common thieves on an epic scale. They steal money, yes, but stability, security, futures, homes, and so on. But defense attorneys take the opportunity to make things seem complicated.
Just dumb it down for them.
There seems to be a rule here. The punishment is inversely proportional to the scale of the crime.
The individuals who lost money most directly in the financial crisis are the people who gambled with their money trying to make more free money without doing any work. They're as much to blame, even more so that they're continuing to make the same gambles without even blinking! If your retirement fund is invested with a Wall St firm, you're part of the problem. Go put it with a company that isn't known to repeatedly rip off its customers. If you can't find one, then put it in a savings account. If the interest is too low, then accept that it's OK to have the occasional financial crisis as long as you make money all the rest of the time.
This is by design. As a crime, heroin possesion provides an easy way to assess guilty/not-guilty; the perpetrator either possesses heroin, or not. In contrast, white collar crimes do not provide an easy way to assess guilty/not-guilty. Clear fundamental truths (yes/no), beget clear legislation, beget clear enforcement.
How do you sentence someone as guilty of a white collar crime? You need to rely on legislation to define the law, because the law is what businessmen consider on a day-to-day basis. If the law allows them to make a decision, they should have every right to make that decision without fear of later prosecution for it.
The problem is not enforcement, it's legislation. If clearer laws defined the decision making affecting "white collar" crimes, then agencies like the SEC could implement clearer enforcement.
Unfortunately the world changes faster than the regulatory environment, so this conundrum is unlikely to ever change.
(sentencing length is another story)
Now, there is huge room for debate about, e.g., whether selling drugs should be illegal or whether people should receive jail sentences for stealing a TV. But in those prosecutions it's exceedingly rare that there is any doubt about whether the defendant actually did what he was accused of doing. The line between legal conduct and illegal conduct is clear and it's easy to prove when someone has crossed it.
White-collar crime is totally different. Selling stock, making out like a bandit on a deal, screwing someone on the other side of a transaction, losing a bunch of someone else's money--all those things can be legal or illegal depending on what you knew or said while it happened. Proving knowledge and intent beyond a reasonable doubt is really hard to begin with, and especially so when it comes to subject matter (like financial transactions) that are complex and difficult to understand.
And frankly, you wouldn't want it any other way. You really don't want the government coming up with creative prosecutions to get guys who did "bad" things but followed the letter of the law. That's not a society you want to live in.
On the other hand for blue collar / property / violence crimes there are a bazillion analog levels. There are many levels and layers of criminal charges for killing someone ranging from "driver ran over a bicyclist" up to serial killer with punishment in proportion to level of intent and likelihood of repeating etc.
Its not that its hard to prove or there is little evidence beyond circumstantial, its that typical police going after a typical guy for typical things will bust someone frankly obviously at "level 5" and the prosecutor offers them the choice of a trial against charges of "level 4" or plea bargain out as guilty of a "level 3".
White collar crime tends not to have a sliding scale of criminal activity. Maybe a small dollar value is a misdemeanor vs a felony, but its very binary either you cheated or you didn't and one or two steps below the binary "did it" is you walk not even hit a grand jury.
This is before you get into theory about open conspiracy and control fraud. If everyone knows the whole structure relies on no bad apples and someone is a bad apple then what do you do, indict the entire economic system for having intentionally created a ridiculously cross connected system?
For example: pretty much whenever someone sells something, the buyer is going to be more optimistic about the value of the thing than the seller. At what point does that become fraud?
(In practice, of course, it can get very complex and grey...)
When we get to white collar crime, it gets too messy. Learn about companies before you buy their stock. But, don't learn certain things about them, because that's insider trading. This is confusing to juries because the concept itself is just confusing. We see behavior that we don't like -- "there outta be a law!" -- but it's hard to pin down the precise behavior that makes it bad. E.g.:
"Hey those bankers made a bunch of risky loans but didn't lose money during the recession when they went bust. There outta be a law!"
"Ok, so outlaw risky loans even if it means poor people will have a harder time buying a house?"
"Well, no. Help poor people get loans but don't let bankers make too much money selling risky loans"
"How do we even define risky?"
And so on. ....
Except, apparently, according to the OP, if your crime is large and complex and financial enough.
There might be other issues as well such as
- a white collar employee being bit smarter, in terms of covering their tracks, ie don't use email, only take via phone or face to face. This makes these crimes much tougher to figure out.
- working in groups that ensure that everyone is equally guilty, ala the LIBOR fixing cabal. Having powerful friends is still a great deterrent to being charged with a crime. Look at the British child sex scandal.
- these crimes are much less publicized and incendiary. It's easy to get some people worked up over drug or assault crimes as they can put a face to a victim but with white collar crime its much tougher.
- their crimes tend not to affect other high power people.
- white collar crimes tend to be more sophisticated. If you believe this then it's not a stretch to think that you need to have better law enforcement working on these cases. This has always been the knock on the rating agencies, Moodies, S&P and Fitch, is that they need to be as good as the wall street quants to understand the new products but if they were that good then they wouldn't be working for the rating agencies.
I'm not sure I buy that argument completely but I believe that there is a bit of truth to it. I mean I know alot of quants on wall street and those that work for the rating agencies fall into two buckets, those that want to work 9-5 and those that aren't what I'd consider to be top tier quants.
Just look at the 2008 financial crisis. White collar employee's got rich leading up to it. and then to fix it, the US flooded the markets with money meaning that white collar employee's made even more money when fixing the mess.
Bernie Madoff's biggest failing was that he ripped off rich people.
So there is a problem that ultimately the government can't look too hard into these problems without making it glaringly obvious that the reason why the public is exposed to harm that would normally be against individuals is it's own fault.
- a white collar crime probably doesn't have direct victim
A victim of robbery will initiate the police to act. A violated regulation can't do the same.
Fixing LIBOR had very real life-changing consequences for many people. They weren't as direct as a knife attack, but they still made a huge difference to the financial - sometimes also the personal - opportunities available to many people.
The difference is that most of those people would have had no idea they were being robbed. They would simply have had less money to spend - but they wouldn't have been aware why.
In a fair world there would be immediate compensation for all victims in the form of basic recompense plus punitive damages.
IMO that would be more effective in stopping white collar crime than the prospect of jail, because it would change the risk/reward profile and skew it more towards financial damage and loss of customer good will.
Rich, powerful people were on both sides of the Dewey & LeBoeuf case. This is an example of rich people ripping off other rich people (usually investors). All of cases listed in the article follow this pattern.
However, you are correct with regards to the Libor scandal, which wasn't mentioned in this article directly, but would be a better example of serious crime against the public going almost entirely unprosecuted.
"Holder will reassume his lucrative partnership (he made $2.5 million the last year he worked there) and take his seat in an office that reportedly – this is no joke – was kept empty for him in his absence."
Ref: http://www.rollingstone.com/politics/news/eric-holder-wall-s...
But RollingStone has the most slanted, sensational coverage on anything Wall Street. Their accounts aren't journalism.
I'm not a fan of Taibbi's style, and I think that he jumps to biased conclusions. But I've read just about everything I've come across regarding the Financial crisis, and Taibbi has contributed substantial and important reporting to fill out the context of what exactly went down.
To me, Taibbi is a pretty good source for facts, since he wears his biases so openly on his sleeves, it is trivial to account for when he does reach. He also has a completely different perspective and motivational drive than the Financial press beat reporters who are afraid to stray too far from the self-serving accepted wisdom that's developed in the financial industry, as well as the broad audience reporters who are mostly afraid to dive into the minutia. Taibbi is highly idiosyncratic, but his perspective is valuable as long as you're taking in a spectrum of views and have an ability to bring a sense of skepticism to reported claims.
I'm not sure that kind of 'reporting' is a net positive.
E.g. here's one of the worst offenders, only 40 years ago:
On February 21, 1975, Mitchell ... was found guilty
of conspiracy, obstruction of justice, and perjury
and sentenced to two and a half to eight years in
prison for his role in the Watergate break-in and
cover-up
His main accountant and auditor Frank DiPascali, on the other hand, cooperated fully with investigators and testified at the trial of 5 other high level members of the fraud. Although he could have been given over 100 years, he received 1 year home detention and 1 year of supervised release during his final sentencing in May 2015 (6 years after pleading guilty).
So it's not really about ripping off rich people, it's more about committing fraud in a very legally and technically opaque manner, passing responsibility down the chain (LIBOR), and never EVER committing it in a manner that can be recorded or traced.
This last point is widely believed to be the reason why GS recently fired ~30 new analysts. If they were negligent enough to cheat on a test in a trackable manner (googling answers on company computers), they represented a huge potential liability to the firm.
The style is weird too. The juries don't seem to be able to do their own investigation; they are passive, relying on a presentation given to them. They should be able to ask questions, inquire about things like the base rate of an occurrence. And things like jury instructions, telling people to disregard info or their biases. This is simply not how human brains work. Let alone untrained ones. We'd be far, far, better off having a panel of judges. And proper review to identify systemic issues.
Someone said "If I'm guilty, I'd much prefer a jury; if I'm innocent I'd prefer judges".
The very first people to go were the idiots who couldn't string a sentence together. After that it was anyone who expressed the slightest anti-cop sentiment. The judge didn't even make the lawyers waste blackballs on them, she just summarily dismissed them for cause. The jury was two software engineers, a contractor, a pastor, some stay-at-home moms, a mechanic, a teacher and a geologist.
Some case of computer-based financial fraud for example and the jury should be made up of people with qualifications and experience in those fields.
In short, they don't have jurors, but a panel of judges. The judges are not passive, as they are in the US. That is, in the US, judges are referees between two opposing sides. In Germany, the judges are active participants, and can inquire and guide the process.
The court is set up in such a way that at least one lay judge has to concur with a conviction (because of majority rules). So there is also a safety valve where "the common people" can stop oppressive prosecution.
Differential calculus, trigonometry, and even geometry can wait. They are interesting topics, but statistics (with bayes) is something that is immediately applicable to typical situations encountered by the average citizen.
I don't think that's even remotely sensible, but it seems to be part of America's cultural DNA.
This is not some abstract bullshit we use to justify arming ourselves. Very real suffering happens when power is consolidated with no checks, and the notion of trail-by-jury federates power in a very real way. Your opinion of the sensibility of this is not really a factor, to be honest.
Even a system as old and battle-proven as trial by jury is not necessarily the best possible system today. Personally, I think it is still a good system, but that questioning it is still worthwhile.
To think that governments can't become oppressive at the blink of an eye is not only short-sighted but ahistorical.
If you disagree with America's cultural DNA, your best option is to leave the country (honestly).
However, oldmanjay makes a very important point about how positive feedback loops tend to emerge from those who seek power (i.e., those who seek to control others will attempt to use the limited power they have in an effort to secure even more power). The checks and balance system serves the critical role of subverting some of the darker tendencies of human nature.
I'm certain a better solution exists that solves both problems — a system that determines guilt with high accuracy while maintaining resistance against corruption. I am not so certain that such a system will be implemented in the foreseeable future.
It's useful to go back to 1999 and read articles about the repeal.[3]
"Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,'' Treasury Secretary Lawrence H. Summers said. ''This historic legislation will better enable American companies to compete in the new economy."
"The world changes, and we have to change with it,'' said Senator Phil Gramm of Texas, who wrote the law that will bear his name along with the two other main Republican sponsors, Representative Jim Leach of Iowa and Representative Thomas J. Bliley Jr. of Virginia. "We have a new century coming, and we have an opportunity to dominate that century the same way we dominated this century. Glass-Steagall, in the midst of the Great Depression, came at a time when the thinking was that the government was the answer. In this era of economic prosperity, we have decided that freedom is the answer."
One member of Congress got it right. "I think we will look back in 10 years' time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930's is true in 2010," said Senator Byron L. Dorgan, Democrat of North Dakota.
[1] https://en.wikipedia.org/wiki/Public_Utility_Holding_Company... [2] http://www.usnews.com/opinion/blogs/economic-intelligence/20... [3] http://www.nytimes.com/1999/11/05/business/congress-passes-w...
http://icelandreview.com/news/2015/02/12/icelandic-bankers-s...
Our insanely high conviction rates are the result of the extortion scheme that is our plea bargaining system - not because prosecutors are great at their jobs. It appears from this article that prosecutors are unhappy when defendants have the resources to avail themselves of the rights they have under our system of law, but I find it hard to imagine that they will find many people that are sympathetic to their complaints.
A trite solution, yes? But truthfully, if a lawyer cannot explain to the jury why this white-collar criminal deserves death (or whatever!), perhaps they should enlist some of the commenters on HN as translators.
Imagine a future with AI-designed finance ;)
Perhaps juries for financial crimes need analytical skills that are on par with the defendant's crimes.
IANAL but I've got to think there are consumer protection laws against selling things to people without them understanding what they're buying.
Which would result in more accurate, less biased and clickbaity headlines. I don't see the problem.