Corporations are people. Kinda. Sorta. Sometimes. Maybe.
The basic principle that corporations are entitled to some of the same legal rights and protections as individuals is pretty well established in law. It was further enshrined – most controversially – in the 2010 Supreme Court ruling in the Citizens United case, in which the justices essentially decided that since companies are really just groups of people that can be swayed by their members (i.e., their shareholders), they are just another form of “person” for the purposes of election spending.
The problem with all this crafty, corporations-as-people reasoning is that while it helps resolve basic disputes in civil law, it seems to break down when it’s needed most. When we most need – as a society – to feel that corporations are being held to account for their most egregious misdeeds, we appear least likely to achieve any satisfactory result.
Consider the case of Credit Suisse. The Justice Department has been battling for nearly a decade to close the doors of overseas tax havens to American citizens – and punish the banks who have helped them conceal assets. This week, Attorney General Eric Holder proudly announced a victory: a guilty plea from Credit Suisse to criminal charges of tax evasion and a $2.6 billion fine — the largest ever forked over by any bank in connection with such a case — for helping Americans conceal assets from the Internal Revenue Service.
“This shows that no financial institution, no matter its size or global reach, is above the law,” Holder proclaimed. “We will never hesitate to criminally sanction any company.”
Well, yes. But even if one forgets how rarely banks themselves have faced criminal charges (it’s been a decade since Credit Lyonnais ‘fessed up in 2004, and you’d have to go all the way back to Drexel Burnham Lambert and the junk bond/insider trading fiascos of the late 1980s for another example), does it provide the kind of resolution for “victims” and the kind of deterrent effect to other malefactors that a criminal penalty is supposed to carry?
Credit Suisse CEO Brady Dougan was quick to say that the guilty plea and penalty would not cause “any material impact on our operational or business capabilities.”
That points to the fine line regulators and other authorities must walk in pursuing justice when it comes to corporations. The Justice Department’s prosecution of accounting firm Arthur Andersen for its part in the Enron fraud effectively imposed a corporate death penalty on the business and left its 85,000 employees out of work. The government understandably doesn’t want its medicine to again carry those kinds of harmful side effects, but it must still strive to deliver punishment strong enough to fit the crime, deter others from such illegal activities — and provide some measure of satisfaction to the general public.
In this case, we won’t get the satisfaction of seeing Credit Suisse locked up for 20 to 25 years, or whatever term the authorities deem suitable for its offenses. In fact, aside from writing that painfully large check – and not being able to write that amount off against its taxes, appropriately enough – Credit Suisse won’t really suffer. Its doors stay open. Its business, as Dougan noted, continues to hum along. The Federal Reserve Bank of New York will allow the bank to keep its designation as a primary dealer. The stock is up slightly from where it was before the guilty plea was announced.
Yes, eight Credit Suisse employees have been indicted and two already have pled guilty. The bank won’t have to disclose the names of the clients who may have used their accounts to evade taxes, though. And Dougan hasn’t been sanctioned as part of the bank’s punishment: He won’t have to undergo a perp walk in handcuffs (although). On the other hand, Dougan’s future is cloudy. He has dodged one big bullet, but odds are his time at the time remaining in the top job is limited. Odds also are that he’ll be allowed to exit far more gracefully than, for instance, ousted New York Times editor Jill Abramson.
You could argue that $2.6 billion is a pretty hefty sum — it apparently may exceed the total amount of taxes Credit Suisse helped its account-holders avoid paying. The banks’ financial penalty is far larger than the mere $35 million the government extracted from General Motors for delaying reporting the problems with an ignition switch on its vehicles that led to at least 13 deaths. That may be the largest ever fine of its kind levied as a result of a National Highway Traffic Safety Administration investigation, but as Secretary of Transportation Anthony Foxx acknowledged at a press conference, $35 million “is a rounding error.”
Ultimately, there may be more fines and more guilty pleas as more agencies crack down on GM. The Justice Department, the SEC and other bodies have yet to weigh in. But clearly, justice has not yet fully been served.
Worst of all is when the corporate punishments seem out of line with what punishment (meager as it might be) is being doled out to employees of those corporations. Why should Fabrice Tourre, a young trader at Goldman Sachs, end up as one of the handful of those individual bankers convicted of wrongdoing? Sure, he had to be held responsible for his actions – and his failure to simply stop and say, hey, this is unethical – but so, too, did his superiors and the firm’s leaders. Why require Tourre to do the perp walk but not them?
Somehow, I’m not comforted by the assertion on the part of an SEC spokeswoman that “you never know who’s next.”
Punishing bad behavior by individuals, whether it’s a murderer or someone like Fabrice Tourre, is relatively straightforward. Punishing bad behavior by individuals who are at the top of the corporate ladder seems to be something for which regulators seem to have less and less appetite, as we’ve witnessed in the years since the financial crisis hit.
But when it comes to finding a way to punish corporations, we seem really stuck for ideas.
If Attorney General Holder wants us to believe that there is no such thing as being too big to jail, he’s going to have to try a lot harder to solve this conundrum.
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