Sunday, October 19, 2008

Response to NYTimes Article on Financial Fraud Cases

Several people have been emailing me the New York Times article by Eric Lichtblau, David Johnston and Ron Nixon, titled, F.B.I. Struggles to Handle Financial Fraud Cases, as it discusses the problems that are faced in the prosecution of white collar crime.  It is a wonderful article that emphasizes how post 9-11, investigative resources were moved from areas related to fraud to matters of national security. Although I am not convinced by the figures that seem to reflect an enormous decrease in the prosecution of white collar crimes, it is clear that investigations of financial institution fraud have not been to an acceptable level. But more importantly, there are a host of other areas that deserve attention and because there has fortunately been no devastating event to trigger these investigations, they have not received the resources they too deserve. So lets look at the figures and more importantly at the problem with approaching regulation, legislation, and prosecutions in a reactive manner - which is the way it has and continues to be approached.

To begin, one can't be so sure about the "statistics" on white collar prosecutions. (see here) The problem here is that there is no clear definition of what constitutes white collar crime.  Many fail to include statutes of RICO prosecutions figuring that these fall under the rubric of organized crime. (see here and here) In reality, however, the most used predicate acts in RICO are crimes such as mail fraud and wire fraud - crimes that are clearly white collar.  So many RICO prosecutions are in fact white collar under any definition that one might use, but these statistics are not reflected when looking at the reportings of white collar crime. The same analysis can be said for the crime of money laundering.  Although the statute has its roots in drug activity, one finds this offense in many white collar cases. (see here). So it is quite possible that some of the alleged decrease in white collar prosecutions may be nothing more than a function of the statistics failing to appear in the category being used to measure the level of reported white collar prosecutions.  DOJ's attempt to overcriminalize some of the improper white collar activities, by using non-white collar crimes as the basis of the prosecution, causes a problem in trying to determine the extent to which white collar prosecutions have decreased.

But that said, it is clear that we aren't seeing as many white collar prosecutions.  Some may claim that this is a function of the DOJ's use of deferred prosecutions to replace the actual prosecution.  In the corporate sphere there may be some truth here - but if the deferred prosecutions curtail criminal conduct as they often do, is that so bad? Some may also claim that the prosecutions are occurring to low-level individuals who are receiving heavy sentences under the guidelines while more culpable individuals skate with cooperation agreements. 

What I think we all can agree upon is that everything seems to be based upon a reactive approach.  9-11 moved resources to national security, Enron's happenings moved the establishment of a Corporate Task Force, fraud post-Katrina created a Katrina Task Force.  This approach is nothing new, and can be seen in the added resources given after the Savings and Loan crisis years ago. Oddly enough, there has been no unitary task force established by DOJ to investigate and prosecute matters from the existing financial mess. (see here)

DOJ and FBI clearly need more resources, but there also needs to be more accountability on how these resources are used. Perhaps less resources should be spent on pornography prosecutions and more on computer crimes like identity theft.  And why are we wasting precious resources to have a prosecution against Ben Kuehne, a respected attorney who is basically charged for writing an opinion letter. (see here) And yes, perhaps more resources need to be spent on educating individuals on what is criminal and the ramifications of criminal activity. Before Congress, the DOJ, or the FBI,  just dumps money someplace so that someone can be blamed for the financial mess we now face, it might be wise to re-evaluate what are the criminal issues of the future and how are scarce resources best spent to deter future criminality.


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This is EXACTLY what the New York Times was talking about in their article.

Posted by: The Lambert Watch | Oct 27, 2008 2:47:49 PM

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