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Big Dirty Money:
The Shocking Injustice and Unseen Cost of White Collar Crime
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Over a decade since the financial crisis revealed an unimaginable level of white-collar crime by some of the highest-status people in our society, a major question remains unanswered. Why did no one go to jail in the United States? Actually, two people did go to jail. The first is a well-known story: Kareem Serageldin, the Egyptian-born banking executive who ended up being sentenced to 30 months in low-security prison. The other was a loan officer named Ken Yu at a small, family-run bank in Manhattan’s Chinatown called Abacus Federal Savings Bank, who was sentenced to six months in jail in 2015. But the strange thing about Ken Yu was that before he was sentenced, he was the star witness for the Southern District of New York’s first and only attempt to hold a bank systematically responsible for mortgage fraud.
Abacus was a baffling target because it was a bank that lent mainly to the Chinese immigrant community in the neighborhood. The crime, at least at first, appeared to be that Ken Yu, a low-level loan originator, fraudulently made loans, pressured clients to give him kickbacks, and stole money from the bank. Seven other employees did similar things. The executives at Abacus knew about this, because they had discovered it themselves and had fired Yu. Yet in May 2012, District Attorney Cyrus R. Vance Jr.. brought a jaw-dropping 240 counts of grand larceny, conspiracy, mortgage fraud, and falsifying business records against the entire bank. It was unprecedented to charge an institution for fraud, and it was clear that Vance thought of this case as somehow fitting into the larger historical context of the financial crisis. “If we’ve learned anything from the recent mortgage crisis,” he told The New York Times, “it’s that at some point, these schemes will unravel and taxpayers could be left holding the bag.”
Yet it was all for naught. In 2015, the grand jury acquitted Abacus on all counts. “Manhattan District Attorney Cyrus Vance Jr. had all of Wall Street in his jurisdiction for enforcing New York state law,” writes Jennifer Taub in her new book, Big Dirty Money, “but the sole bank his office chose to prosecute was Abacus Federal Savings Bank.” Why is that? It might be because Abacus was an easy target or because there really was evidence that the bank executives were involved. Either way, if Vance was trying to make a larger statement, his tactic was extremely flawed; it wasn’t the kind of institution the public was angry about. The public cared about the fat cats on Wall Street.
Taub, a law professor, thinks the D.A.’s office was working from a skewed premise. White-collar criminal cases fail to target the most privileged people. To understand why that is, we have to understand something fundamental: We don’t even have a mutually agreed-upon definition of what “white-collar crime” is. Sure, illicit payments, tax evasion, intellectual property theft, and fraud come to mind, but what about corporations that dump toxic waste into canals or banks like Wells Fargo that encourage their employees to open fake accounts at the expense of their customers? What about someone who uses a counterfeit $10 bill? As Professor David O. Friedrichs, a scholar of white-collar crime, has written, coming up with “a single, coherent, and universally accepted and invoked definition of white collar crime is an exercise in futility.”
With no clear definition, there’s also no official measurement of white-collar crime. While the FBI obsessively measures other crime, it does not have a comprehensive gauge of corporate fraud, executive fraud, tax evasion, or embezzlement. It’s not because it is less costly or because wealthy professionals inflict less harm. Taub, a law professor, finds that white-collar crime probably costs victims between $300 and $800 billion per year, while street-level crimes like burglary, larceny, and theft cost victims around $16 billion. We live in what some call a golden era of white-collar crime. If we ever hope to do more than toss a heap of weak charges at low-level offenders like Abacus, we’ll have to come to a better definition of what it is.
The sociologist Edwin Sutherland introduced the phrase “white-collar crime” in 1939, at a small gathering in Philadelphia. His intention was to define a type of crime that was committed by “a person of respectability and high social status in the course of his occupation.” That is, he did not mean the crimes of rank and file office workers; he meant high-level crimes. This was a critical distinction for Sutherland because he thought that the definition of crime was too narrow, and focused too much on the crimes of poverty. Crime, he noted, was perpetrated at all levels of society. Poverty wasn’t the root of the criminality itself, and crimes committed by the poor were not even the major cause of harm to society. Crime is learned, and the methods come from the community in which a person lives: “Those who become white-collar criminals,” Sutherland said, “generally start their careers in good neighborhoods and good homes, graduate from colleges with some idealism, and, with little selection on their part, get into a particular business situation in which criminality is practically a folkway.”
There were, of course, stark differences in how crime was dealt with. “The crimes of the lower class,” he noted, “are handled by policemen, prosecutors, and judges, with penal sanctions in the form of fines, imprisonment, and death,” while “the crimes of the upper class result in no official action at all, or result in suits for damages in civil courts.” This, you might notice, is still true today.
Another thing Sutherland noticed: Criminal prosecution of high-status white-collar crime “frequently stops with one offender.” He brought up the case of T.J. Pendergast, the Prohibition-era political boss of Kansas City, who was charged with failing to report on his income taxes the bribes he took. Pendergast was sentenced, but the insurance companies who bribed him went untouched. Sutherland was convinced the sentencing disparity and the way we deal with crime was because, as Taub puts it, “the elite class had the power to define what was criminal.” The wealthy have the resources either to exert political influence or become lawmakers themselves.
Sutherland’s analysis surely made sense to a country coming out of the Great Depression, which was, in part, caused by speculation and the fraudulent sale of securities to unsophisticated investors in the 1920s. New laws expanded the definition of crime to include the actions of the wealthy. In 1932, the Pecora Commission began investigating the depredations of the banking sector and inspired a bevy of legislation that targeted elite crime, including the establishment of the Securities and Exchange Commission and the Glass-Steagall Act, which prevented banks from betting their clients’ deposits on the stock market.
This tradition of regulation and enforcement of elite crime continued into the 1970s, with the famous Racketeering Influence and Corrupt Organizations Act and the Foreign Corrupt Practices Act of 1977. The head of the SEC from 1974 to 1981, Stanley Sporkin, aggressively and explicitly went after corporate fraud. Of course, the specter of Watergate ratcheted up the awareness of how deep and extensive elite corruption could be.
But the 1970s was also the beginning of the counterinsurgency against the enforcement of laws against white-collar crime. In 1971, a corporate lawyer and former head of the American Bar Association named Lewis Powell sent a confidential memo to a member of the U.S. Chamber of Commerce titled “Attack on American Free Enterprise System.” Powell’s memo railed against the attacks on business from the “college campus, the pulpit, the media, the intellectual and literary journals,” not to mention the consumer advocate Ralph Nader. Powell advised the creation of a whole legal structure to combat increasing regulation.
For the most part, he got his wish. The administrations of both Jimmy Carter and Ronald Reagan undertook massive deregulatory programs. In the banking sector, the results were almost immediate, as the deregulation of the Savings and Loan banks led to a wave of fraud that overwhelmed and almost crashed the financial system. Other forms of deregulation made it much more difficult to prosecute executives. In 1995, Bill Clinton signed the Private Securities Litigation Reform Act, which made it harder for shareholders to hold corporate officers to account for securities fraud. Increasingly, laws made it so CEOs could act with relative impunity.
Dodd-Frank made the formal banking system safer by tightening regulation and oversight. But it did little to constrain the widespread criminal tendencies of wealthy executives.
It was possible that after the financial crisis of 2008, this country might have undertaken a Pecora-like commission and begun prosecuting executives and wealthy people again. But it didn’t. Instead, the major reform was the Dodd-Frank Act, a bill that early on was drafted in part by a law firm, Davis Polk, that represents major conglomerate banks. Taub writes that, “because no high-level bankers were held personally accountable, because money was poured into the banks to rescue them, to provide giant bonuses to the bankers, and to keep fueling the coffers of bank lobbyists, the banks went into the reform period stronger than ever. They got the legislation they wanted.” Dodd-Frank made the formal banking system safer by tightening regulation and oversight. But it did little to constrain the widespread criminal tendencies of wealthy executives.
This, to Taub, is evidence of her idea that wealth is “criminogenic.” “In our society,” she writes, “extreme wealth often confers tremendous power. So just as power tends to corrupt, so does excessive wealth.” A major reason why 2008 didn’t change anything was that our society did nothing about wealth concentration. The recession made deep cuts through the lives of most people, but it left the superrich class—identified by the Occupy movement as the one percent—intact.
The mistake the Manhattan District Attorney’s Office made when it decided to go after Abacus Federal Savings Bank for its white-collar crime was that it went after a low-status offender (and still lost). Abacus employees committed crimes, yes, but they are not the problem. This is the overall error with white-collar crime enforcement in the U.S.: It actually targets the middle class. According to an FBI report in 2000, over the course of three years, the average value of property lost in a white-collar crime was $210. “While there are tremendous white collar heists,” Taub writes, “the most commonly charged defendants were involved in small dollar crimes.” This was the problem outlined in Jesse Eisinger’s 2017 book about why high-status white-collar crime is not prosecuted, The Chickenshit Club. Eisinger found that prosecutors belong to the same class as the people who commit the most egregious white-collar crime, are frequently enmeshed in the same alumni and professional networks, and are loath to betray their own. They’d much rather go for the easy kill.
All this only furthers Sutherland’s argument, made 80 years ago: We need to directly address the crimes of high-status individuals, especially when they are systemic, as they were prior to the 2008 crisis. For too long, we’ve focused on an “offense-based” definition of crime, without regard to the status of the offender. But Taub thinks that “by ignoring an offender’s social or corporate status (or what some deem an agnostic view), we are catching a lot of small fish in the net while letting giant individual and corporate predators swim free.”
This is the overall error with white-collar crime enforcement in the U.S.: It actually targets the middle class.
Taub suggests we first attempt to measure white-collar crime as a whole. Then we need to measure the harm to victims in terms that go beyond the economic costs. What happens when a group of wealthy bankers fraudulently bring foreclosures on an entire class of people, as they did after the crash of 2008? How can we measure the social and political costs of mass dispossession? Unlike a loss of, say, $210, the loss of a person’s home affects their life and well-being in ways that cannot be assigned a dollar amount. Thousands of people have spent the years since the recession uprooted from their communities. Studies show that depression is exceedingly common for those undergoing foreclosure. It’s even more bleak for those evicted from their homes. An NYU study found that evictions lower earnings and increase emergency room use. Matthew Desmond and Rachel Tolbert Kimbro’s research suggests that, in addition to losing most of your possessions, being displaced from your community and school district, and having your credit ruined, the stress of eviction causes psychological harm that we are only recently coming to understand. Depression lingers for years after the fact, and performance at work and school can be severely impaired. One of the most violent ways you can hurt someone is to make them homeless. So while proper measurement of white-collar crime’s harms might be a difficult task, it is well worth pursuing.
But most importantly, we need to strengthen and enforce the law. Prosecutors need to bring and earnestly try to make cases against corporations and their executives, all while lawmakers enact a slew of tough new laws to make high-status corporate officers liable for crimes committed within their companies. The sad result of the revelation of the Wells Fargo false accounts scandal was that 5,300 low-level employees were fired, while executives faced little consequence aside from fines. And Taub stresses that fines alone are not enough when so much wealth is held by so few. They encourage high-status individual corporate actors to simply pay for the privilege of breaking the law.
A fellow journalist asked me recently why I thought no bankers went to jail after 2008. I told him that it is probably because everyone knows that jail is not a great solution to crime. He said he’d never heard that before. The best solution, it seemed to me, is to prevent it from happening in the first place and then reassert the power of the state in the affairs of the wealthy. “White collar crime, like cancer or influenza, comes in many forms,” Taub writes. “The most virulent strains require government intervention right now.”
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