Tue, May 03, 2011 - Page 9 News List

Corporate crime wave threatens global economy

The explosion of corruption in the US, Europe, China, India, Africa and elsewhere has raised a host of questions about its causes and how to curtail it

By Jeffrey Sachs

Illustration: Yusha

The world is drowning in corporate fraud and the problems are probably greatest in rich countries — those with supposedly “good governance.” Poor-country governments probably accept more bribes and commit more offenses, but it is rich countries that host the global companies that carry out the largest offenses. Money talks, and it is corrupting politics and markets all over the world.

Hardly a day passes without a new story of malfeasance. Every Wall Street firm has paid significant fines during the past decade for phony accounting, insider trading, securities fraud, Ponzi schemes or outright embezzlement by chief executives. A massive insider-trading ring is currently on trial in New York and has implicated some leading financial-industry figures. And it follows a series of fines paid by the US’ biggest investment banks to settle charges of various securities violations.

There is, however, scant accountability. Two years after the biggest financial crisis in history, which was fueled by unscrupulous behavior by the biggest banks on Wall Street, not a single financial leader has faced jail. When companies are fined for malfeasance, their shareholders, not their chief executives and managers, pay the price. The fines are always a tiny fraction of the ill-gotten gains, implying to Wall Street that corrupt practices have a solid rate of return. Even today, the banking lobby runs roughshod over regulators and politicians.

Corruption pays in US politics as well. Florida Governor Rick Scott was chief executive of a major healthcare company known as Columbia/HCA. The company was charged with defrauding the US government by overbilling for reimbursement and it eventually pled guilty to 14 felonies, paying a fine of US$1.7 billion.

The FBI’s investigation forced Scott out of his job. However, a decade after the company’s guilty pleas, Scott is back, this time as a “free-market” Republican politician.

When US President Barack Obama wanted somebody to help with the bailout of the US automobile industry, he turned to a Wall Street “fixer,” Steven Rattner, even though Obama knew that Rattner was under investigation for giving kickbacks to government officials. After Rattner finished his work at the White House, he settled the case with a fine of a few million dollars.

Why stop at governors or presidential advisers? Former US vice president Dick Cheney came to the White House after serving as chief executive of Halliburton. During his tenure at Halliburton, the firm engaged in illegal bribery of Nigerian officials to enable the company to win access to that country’s oil fields — access worth billions of dollars. When Nigeria’s government charged Halliburton with bribery, the company settled the case out of court, paying a fine of US$35 million. Of course, there were no consequences whatsoever for Cheney. The news barely made a ripple in the US media.

Impunity is widespread — indeed, most corporate crimes go un-noticed. The few that are noticed typically end with a slap on the wrist, with the company — meaning its shareholders — picking up a modest fine. The real culprits at the top of these companies rarely need to worry. Even when firms pay mega-fines, their chief executives remain. The shareholders are so dispersed and powerless that they exercise little control over the management.

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